IRS Expands 2022 Crypto Tax Question

August 22, 2022

The crypto question on your tax return has been updated once again. This time, the IRS is increasing the scope of the question.

The recently released draft of the 2022 Individual Income Tax Return features an update to the now-infamous cryptocurrency question to include giving away cryptocurrency as a gift.

The tax return now asks: At any time during 2022, did you: (a) receive crypto as a reward, award, or compensation; or (b) sell, exchange, gift, or otherwise dispose of a digital asset?

Understanding the Update

“The IRS seems to have learned from some of the experiences of the last few years and separated the two sides of a potential transaction – the receipt and disposition,” says Andrew Gordon, President of Gordon Law Group. 

“They make it clear that certain receipts, such as awards and compensation, are taxable. On the other hand, giving a gift may or may not be taxable or reportable, yet checking the box ‘yes’ would be required. So, it seems, in some ways, the new language is broader and could include non-taxable gifts.”

A gift is only reportable and taxable if it goes over the annual or lifetime threshold. The annual threshold for 2022 is $16,000.

“I expect the IRS to refine the question, but not necessarily expand it in the future,” says Gordon. “An effective question would alert taxpayers of the reporting requirements and maybe include reportable gifts over the annual threshold.”

History of the IRS’s Crypto Question

In 2019, the IRS first presented the crypto question on Schedule 1 of the annual tax return. It was often missed because not all taxpayers have to complete Schedule 1.

“The language at this time was quite broad; ‘receive, sell, send, exchange, or otherwise acquire,’” says Gordon. “This could include taxable transactions like sales, but potentially non-taxable such as purchases.”

For 2020, the IRS used the same question but moved it to Form 1040, which is required to be prepared by all taxpayers.

In 2021, the IRS clarified the crypto question to ask if you received, sold, exchanged, or disposed of virtual currency. The IRS also clarified that if you only bought crypto with USD and held it, you did not have to check “yes.”

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