Last Updated: August 25, 2020
This post was originally published on Forbes by Shehan Chandrasekera on February 12th, 2020.
There are hundreds of tax forms and schedules published by the IRS. This post discusses some of the most frequently used tax forms and schedules applicable to cryptocurrency holders in the US. These may need to be filed along with the familiar Form 1040.
Schedule 1 (Additional Income and Adjustments to Income)
Starting 2019 tax year, on Schedule 1, you have to answer the question, “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” This is such a broad question and most cryptocurrency users will have to check “yes” for this question.
Also, line 8 is used to report ordinary income coming from forks and airdrops (A43).
Form 8949 (Sales and Other Dispositions of Capital Assets)
This is where you would report your cryptocurrency gains and losses. It is virtually impossible to track gains and losses arising from crypto trades. It is highly recommended to use CoinTracker to automate this process. Once you connect your exchanges and wallets to a software, you can generate a Form 8949 with all the transactions.
Schedule A (Itemized Deductions)
If you donate crypto assets to a qualified charity, the amount you are allowed to deduct would go on Schedule A line 12. The amount you are eligible to deduct depends on how long you kept the asset. If you donate a cryptocurrency which you held for more than one year, you would get a deduction equivalent to the fair market value (FMV) of the asset at the time of the donation. If you kept the asset for less than 12 months, you would get a deduction equivalent to the lesser of cost basis or FMV, at the time of the donation. If your deduction is more than $500, you will have to complete Form 8283 as well.
Schedule B (Interest and Ordinary Dividends) Or Schedule E (Supplemental Income and Loss)
Schedule B or E may be used to report income similar to staking rewards. The IRS has not come up with guidance related to how staking related income should be taxed. Some argue staking rewards are interest income while others believe that staking rewards should be reported as rental income (How Staking Tezos May Generate ‘Rental’ Income). Interest income is reported on Schedule B and rental income is reported on schedule E.
Schedule D (Capital Gains and Losses)
Schedule D summarizes what you reported on Form 8949. This schedule is also by CoinTracker. This schedule will also show your stocks & security gains & losses.
Schedule C (Profit or Loss From Business)
If you have a mining operation which you carry out to make a profit (as opposed to a hobby), your mining income and related expenses would be reported on schedule C. Income to be reported on line 1 is the FMV of the coins at the time you mined them. Some expenses you can use to offset mining income include mining equipment cost, utilities, internet, rent, etc. You will be taxed on the net income.
Form 8275 (Disclosure Statement)
Form 8275 should be used carefully. It is used to disclose positions that are not adequately disclosed on your tax return. Crypto tax space has a lot of general guidance but lacks specific guidance aimed at sophisticated transactions like futures, options, perpetual swaps, etc. When faced with sophisticated crypto transactions where you would take a position not directly addressed by the existing guidance, you can use this form to disclose the reasoning behind it. More disclosure is beneficial because it shows your good faith in reporting.
This is summary of what forms to be file if you are a cryptocurrency holder. Make sure to file the right forms and also avoid these common pitfalls.
CoinTracker helps you calculate your crypto taxes by seamlessly connecting to your exchanges and wallets. Questions or comments? Reach out to us @CoinTracker.
Disclaimer: this post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.