In the last few years, cryptocurrency has seen a lot more regulation and hypervisibility and this is a testament to how much progress has been made as well as the increase in its use. However, this hypervisibility and regulation do mean that making use of cryptocurrency is a lot more complex than it used to be and one of the most prominent issues in this regard is that of taxation. In the past, there was no laid down tax code for use of cryptocurrency and so many users and investors simply never paid tax on cryptocurrency. This is now changing as many countries around the world are taking the taxation of cryptocurrency-related transactions more seriously.
It has been revealed that the United States Internal Revenue Service has begun asking questions about cryptocurrency usage from people ahead of tax season in their new standard 1040 tax forms. A snippet of the form shows that the section “Additional Income and Adjustments to Income” asks people about their crypto use.
Tax and Crypto
The new section of the form inquires about use and transfer of cryptocurrency of the individual in question.
“At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” the form asks.
While the question expects a simple yes or no response, it is indicative of how much more attention is being given to the taxation of cryptocurrency. It was previously reported that the Internal Revenue Service had begun asking questions for individuals about their participation in crypto airdrops and transfers and this is because virtual currency is considered to be property for federal taxation purposes.
This leads back into the age-long question of whether cryptocurrency should be considered simply currency in itself or an investment tool seeing as it functions as both. Clearly, the current tax code recognizes it as an investment tool and taxes it as such but they have been instances of cryptocurrency tax code going wrong such as a man in Sweden who was taxed three times the amount he ever made in trading cryptocurrency due to a technicality in the tax code. As the world of crypto and tax continue to evolve, it is likely that will be a more comprehensive set of guidelines that will benefit both the tax services and crypto holders.