In 2019, taxpayers who engaged in virtual currency transactions will need to file Schedule 1, Additional Income and Adjustments to Income. Schedule 1 of the 2019 1040 Form presents the question to Taxpayers: “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency? This is a Yes or No question. It REQUIRES an answer.
Adding the Question on Schedule 1 of the 2019 Form 1040 is an enforcement trigger for the IRS.
If the answer is Yes:
Taxpayers that disposed of any virtual currency that was held as a capital asset
Must use Form 8949 to figure out the Taxpayer’s capital gain or loss and report it on Schedule D (Form 1040 or 1040-SR).
Taxpayers that received any virtual currency as compensation for services or disposed of any virtual currency held for sale to customers in a trade or business
Must report the income the same way they would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1, or inventory or services from Schedule C on Schedule 1).
If the answer is No:
Taxpayers that have not engaged in any transaction involving virtual currency
Don’t have to file Schedule 1; just check the “No” box.
A transaction involving virtual currency includes:
- A receipt or transfer of virtual currency for free (without providing any consideration), including from an airdrop or following a hard fork;
- An exchange of virtual currency for goods or services;
- A sale of virtual currency; and
- An exchange of virtual currency for other property, including for another virtual currency.
Taxpayers ought to gather documents and organize tax records
The Internal Revenue Code and regulations require Taxpayers to maintain records that support the information provided on tax returns. Taxpayers should maintain records documenting receipts, sales, exchanges or other dispositions of virtual currency and the fair market value of the virtual currency.
Virtual Currency is a priority for the IRS
IRS has stated that Taxpayers need to understand their obligations involving virtual currency. IRS will take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules involving virtual currency. Consult your specialized tax advisor.