When it comes to tax, most are well acquainted with the Individual Income Tax Return Form 1040 but if you’ve purchased, held, exchanged, received, disposed of, gifted - basically interacted with cryptocurrency in any way then here are all of the other forms that you may need to be aware of.
Form 1040 Schedule 1](Additional Income and Adjustments to Income)
There was panic amongst the US crypto community when “The Crypto Question” was added into Schedule 1 back in 2020.
Chances are you're reading this blog looking for a gentle nudge to check the box or for an excuse not to! There’s a lot of controversy around this new question and a lot of scepticism around crypto tax on the whole - do the IRS really know what you hold? Yes, but even if they don't then chances are they will find out further down the line, so you should answer truthfully. Being honest about your crypto holdings shows the IRS that you are proactive about tax and it could help you to avoid audits or penalties in the future. If anything, it will simply help you sleep at night!
Even if you have NO taxable obligation surrounding your cryptocurrency activity (e.g. you have just bought or held crypto and have no disposals for the year in question) you should still answer this question yes. It may seem unnecessary but this response flags to the IRS that you hold crypto and may generate a taxable event in the future.
Other income - Line 8
You also need to be aware of Line 8 on Schedule 1. This is where you should report any income from cryptocurrency including:
- Airdrops or forks
- Mining, if you class yourself as a Hobbyist Miner (Business Miners should use Schedule C)
Form 8949 Sales and Other Dispositions of Capital Assets
This is where you should list all of your transactions that qualify as a capital gain or loss. You need to detail the date acquired, the date of disposition, your proceeds (Fair Market Value), your cost basis and your gain or loss.
As the amount of tax that you pay is based on how long you held the cryptocurrency for, Form 8949 is split into two parts - Part 1 is for Short Term Gains and Part 2 for Long Term. At the bottom of each section you will find a Totals row (2) where you should declare your total proceeds, cost basis and gain/loss.
Going to have a lot of calculations and a lot of filling-in to do?
Its often unrealistic to do all of this work manually and sending it all out to a CPA can be very expensive. Check out Recap – simply connect your exchange accounts or import your data by CSV and we do all of the calculations for you – and you can download your completed 8949 straight out of the app.
Form 1040 Schedule D Capital Gains and Losses
This is where you summarize your total capital gains and losses using the information you provided on Form 8949. Again, this form is split into Part 1 and Part 2 for Short Term and Long Term Gains.
Form 1040 Schedule A Itemized Deductions
This form can be used to report any applicable expneses or charitable deductions.
Gifts to Charity - Line 12
If you donate cryptocurrency directly to a qualified charitable organization then you can claim a charitable deduction of the fair market value at the date of donation. The amount that can be deducted depends on how long you held the crypto for.
Other Itemized Deductions – Line 16
This is where any applicable expenses for hobbyist miners should be reported.
Form 1040 Schedule C Profit or Loss From Business
If you determine yourself as a business miner then you should report your income and expenses here. The form is split into Part 1 Income and Part 2 Expenses. The income to report on Line 1 must be the value of the coins when you mined them.
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Hopefully you're now more aware of the forms and questions you may encounter. Still got questions - reach out through the in-app support. We always recommend speaking to a CPA or tax professional before acting on any of our guidance.