The 2022 draft instructions applicable to tax form 1040 have a crypto section and there were some updates made to it by the Internal Revenue Service (IRS).
The tax agency stated that digital assets would now also include virtual currencies, such as stablecoins and cryptocurrencies, and non-fungible tokens (NFTs).
New IRS instructions
The draft instructions applicable to tax form 1040 for 2022 were released last week by the Internal Revenue Service (IRS).
The tax form that individuals use for filing income tax returns in the United States is called 1040. There are a number of changes related to cryptocurrencies in the new instructions.
Previously, there had been a section named ‘Virtual Currency’ in the instructions, but it has now been replaced with ‘Digital Assets’.
According to the IRS, the term refers to digital representations of value that are maintained on a digital ledger secured cryptographically, or any similar technology.
It further clarified that they would include stablecoins and cryptocurrencies as well as non-fungible tokens (NFTs).
In comparison, the instructions that had been issued for the same tax form last year had not included stablecoins and NFTs.
The requirements
According to the instructions, the first page of the tax form 1040 would have a question regarding digital assets.
Taxpayers would be required to select the ‘Yes’ box in the event that they have received, whether as an award, reward, or payment of services or property, gifted, exchanged, sold, or disposed of a digital asset in the year 2022.
Any financial interest in any digital asset would require them to tick this box. The draft 1040 tax form had been released back in August 2022.
According to experts, this should be considered a good change. They said that people trading NFTs would not often think of them as a virtual currency.
More changes
It was also predicted that there might be new categories included in the broader language used by the IRS.
This would include taxpayers getting digital assets via ‘play-to-earn games’. But, the experts also said that the IRS would be required to play catch up because the crypto space moves very quickly.
Miles Fuller, who had previously worked at the IRS under the Office of Chief Counsel, said that they were expanding their terminology related to the digital asset term.
Now working at Taxbit as the head of government solutions, he said that it was likely that the future would see the IRS introduce new regulations.
He said that they would implement a regulatory regime soon enough and it would not be far off.
This does seem likely, given that the crypto space is evolving and expanding very quickly. Cryptocurrencies and their ilk are being widely used by people and this means that tax implications have to be considered.
It is likely that next year’s tax form will also have some new instructions for people who are involved with crypto in any way.