IRS Modifies Crypto-Related Questions on 1040 Tax Form
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The U.S. Internal Revenue Service has amended a question related to crypto taxes in Form 1040, making it clearer for taxpayers.
The United States Internal Revenue Service (IRS) has amended the language used in the Form 1040 tax return application, making it easier for taxpayers to assess their returns for cryptocurrencies. The changes will likely be welcomed, as it offers a clearer insight into how cryptocurrencies are taxed.
The assessment in question now reads,
“At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
Previously, the question asked if the individual “acquired any financial interest in any virtual currency?” It is now easier for taxpayers to understand whether a particular transaction qualifies for taxation.
The change follows a crypto tax guidance released by the agency last year. That guidance made it clear that only assets that were sold or exchanged for goods, services, property, or other assets, would qualify for taxation. With the language now much clearer, investors should have less concern about running afoul of the law.
The amendment is a sign that the IRS is also looking to work regulations into the crypto market. There has been a sizable move on the part of U.S. regulators in recent weeks to rein in the market. U.S. authorities are no longer ignoring the market or lagging behind others with respect to regulation.
The IRS’ 1040 tax form tweak accompanies recommendations that many U.S. officials have been touting in 2021. Most of these suggestions have to do with ensuring compliance with securities laws and the regulation of stablecoins.
IRS looking to tackle crypto
The IRS has upped its game when it comes to the crypto market in recent months. It has specifically focused on eliminating illegal activity, including offering grants to break Monero’s privacy. Both the IRS and the Department of Justice are investigating Binance to root out illegal activity. They have not released an official statement on the matter, however.
It is also keen on enforcing traceability and, to that end, is examining ways in which it can monitor activity with wallets. Here too, the goal is to ensure that no illicit activities are taking place using crypto assets. Furthermore, it has asked for a $32 million budget to ensure tax enforcement in the crypto market.
Companies in the crypto space are also working to make tax return filing for investors, while also helping government agencies with the process. The IRS selected TaxBit to ensure proper reporting of taxes in May. The latter’s CEO was pleased with this partnership, saying that “regulators are embracing the class.”
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