Dropdown button for navigation mobile view

Taxpayers should continue to report all cryptocurrency, digital asset income

Posted by: Zaher Fallahi
Posted On: Jan 29, 2024

Source: IRS IR-2024-18

WASHINGTON — The Internal Revenue Service today reminded taxpayers that they must again answer a digital asset question and report all digital asset related income when they file their 2023 federal income tax return, as they did for their 2022 federal tax returns.

The question appears at the top of Forms 1040, Individual Income Tax Return1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return, and was revised this year to update wording. The question was also added to these additional forms: Forms 1041, U.S. Income Tax Return for Estates and Trusts1065, U.S. Return of Partnership Income1120, U.S. Corporation Income Tax Return; and 1120S, U.S. Income Tax Return for an S Corporation.

Depending on the form, the digital assets question asks this basic question, with appropriate variations tailored for corporate, partnership or estate and trust taxpayers:

“At any time during 2023, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

What is a digital asset?
A digital asset is a digital representation of value that is recorded on a cryptographically secured, distributed ledger or any similar technology. Common digital assets include:

Everyone must answer the question
Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, 1120 and 1120S must check one box answering either “Yes” or “No” to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.

When to check “Yes”
Normally, a taxpayer must check the “Yes” box if they:

How to report digital asset income
In addition to checking the “Yes” box, taxpayers must report all income related to their digital asset transactions. For example, an investor who held a digital asset as a capital asset and sold, exchanged or transferred it during 2023 must use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss on the transaction and then report it on Schedule D (Form 1040), Capital Gains and Losses. A taxpayer who disposed of any digital asset by gift may be required to file Form 709 US Gift ( and Generation-Skipping Transfer) Tax Return..

If an employee was paid with digital assets, they must report the value of assets received as wages. Similarly, if they worked as an independent contractor and were paid with digital assets, they must report that income on Schedule. Schedule C is also used by anyone who sold, exchanged, or transferred digital assets to customers in connection with a trade or business.

When to check “No”
Normally, a taxpayer who merely owned digital assets during 2023 can check the “No” box as long as they did not engage in any transactions involving digital assets during the year. They can also check the “No” box if their activities were limited to one or more of the following:

For a set of frequently asked questions (FAQs) and other details, visit the Digital Assets page on IRS.gov.

End of FinCEN Material.

Zaher Fallahi, Tax Attorney, CPA, assists taxpayers nationwide with their cryptocurrency tax, FBAR filing with FinCEN, gift tax,  foreign gifts, IRS audits, undisclosed foreign bank accounts streamlined procedures, and other international tax matters. Tel.: (310) 719-1040, (714) 546-4272 and (877) 687-7558 toll free nationwide. Websites: zflegal.com and zfcpa.com E-mail taxattorney@zfcpa.com

Mr. Fallahi has been an exceptional attorney throughout my experience with him. His deep expertise and thorough understanding of OFAC law were evident. He provided clear and insightful guidance that was crucial in my case. Mr. Fallahi's professionalism and commitment to me as his client were truly commendable. He consistently ensured my concerns were addressed promptly and effectively. I highly recommend Mr. Fallahi to anyone seeking expert advice and representation in OFAC matters.
It's been an honor to know Zaher Fallahi, Esq for the past 49 years.He is one of kind in almost everything. His clients and friends are always his priority. In my long life, I have had the chance to be helped by many people. But ZaherFalahi is a distinguished personality that his professionalism helped me to succeed in life.And that's why I never hesitate to refer my family and friends for all their legal and financial matters to him.
I have had the pleasure of knowing attorney Zaher Fallahi for over 10 years in a professional capacity. Zaher is knowledgeable, diligent, capable and a conscientious attorney. Zaher has a strong reputation in his field - International Tax and Undisclosed Foreign Bank Accounts - and is a good person, in general. I highly recommend him for your legal needs.
More reviews
js_loader
Request Consultation