IRS Form 1040 Virtual Currency Question Guidance

calendar iconApril 6, 2022

In a news release dated March 18, 2022, the IRS issued a reminder and guidance to help individual taxpayers answer the virtual currency question on page 1 of Form 1040. Individual taxpayers must check “Yes” or “No” in response to the question, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” This question should not be left blank.

Taxpayers can check the “No” box if they did not hold virtual currency in 2021 or when their activities were limited to:

  • Holding virtual currency in their own wallet or account
  • Transferring virtual currency between their own wallets or accounts
  • Purchasing virtual currency using real currency, including purchases using real currency electronic platforms such as PayPal and Venmo
  • Engaging in a combination of holding, transferring, or purchasing virtual currency as described above

Taxpayers check the “Yes” box when their activities in 2021 included one or more of these common transactions in virtual currency:

  • The receipt of virtual currency as payment for goods or services provided
  • The receipt or transfer of virtual currency for free (without providing any consideration) that does not qualify as a bona fide gift
  • The receipt of new virtual currency as a result of mining and staking activities;
  • The receipt of virtual currency as a result of a hard fork
  • An exchange of virtual currency for property, goods, or services
  • An exchange/trade of virtual currency for another virtual currency
  • A sale of virtual currency
  • Any other disposition of a financial interest in virtual currency

Please note, the list above is not comprehensive and there may have been other transactions in 2021 that would lead the taxpayer to check the “Yes” box.

Additional Guidance

A taxable sale/exchange/disposition/transfer of any virtual currency that was held as a capital asset through the transaction date is reported on Form 8949 to figure the capital gain or loss realized and reported on Schedule D of Form 1040. If a taxpayer received any virtual currency as compensation for services or disposed of any virtual currency that they held for sale to customers in a trade or business, they must report this income as they would report other income of the same type (for example, W-2 wages, or inventory or services income from a business on Schedule C).

Taxpayers interested in the taxation of virtual currency can check out the IRS Frequently Asked Questions on Virtual Currency Transactions or contact a Cherry Bekaert advisor.