The Internal Revenue Service announced yesterday that the 2022 filing season will open on January 24, and tax returns for individual U.S. taxpayers are due on April 18. Tax season is especially cumbersome for those who buy, sell, trade, or invest in digital assets such as cryptocurrency and Non-Fungible Tokens, or NFTs. Unlike your average brokerage account at Edward Jones, until now, most cryptocurrency exchanges haven’t provide a 1099 or other information reporting form that accurately reports gains and losses from transactions entered into in a given year. Calculating basis, gains, and losses were incredibly cumbersome and expensive for investors in digital assets.
Today, TaxBit announced a new network that will provide free, unlimited federal information returns needed for cryptocurrency and NFT investors for 2021 for transactions that were conducted on exchanges that belong to the TaxBit Network.
Tax Reporting for Digital Assets Like Crypto and NFTs – 101
In general, cryptocurrency and NFTs are taxed like property. You can read more about how to properly report these assets here. But investors in cryptocurrency and NFTs do not currently get the kind of information reporting forms that holders of publicly traded securities receive. The lack of routine and uniform information reporting makes it extremely costly and time-consuming for taxpayers to prepare their federal income tax returns and report virtual currency or digital asset transactions.
Say you bought 3 shares of Microsoft MSFT +0.1% stock back in January of 2018 for $89.00 a share. Then on December 10, 2021, you sold those three shares for $342 a share. You will receive 1099 showing that you had basis of $267 in the three shares, a gain of $253 per share, and a total gain of $759. Because cryptocurrency is treated as property, but is not eligible for 1031 Like-Kind Exchange Treatment, exchanging one type of cryptocurrency for another is a taxable transaction. And keeping track of information required to accurately calculate and report the tax consequence of such transactions has historically been extremely cumbersome and difficult, both from a labor-intensive and cost point of view.
With the passage of the Infrastructure Investment and Jobs Act (Public Law 117-58), cryptocurrency will be defined as a security and subject to increased information reporting requirements by “brokers,” which will now include “[a]ny person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” Put differently, once the new law takes effect in December of 2023, all digital asset brokers, exchanges, or sellers will be required to provide information reporting forms for digital asset transactions, including cryptocurrency and NFTs.
Credit to@forbes
