If You Traded Bitcoin in 2021 IRS has its Eyes on You


Many Bitcoin enthusiasts choose investing in the king of the crypto assets (what is a crypto-asset?) primarily because it is decentralized. That is, it’s not subject to the rules, regulations, and whims of a centralized banking marketplace. This makes it especially appealing to Libertarians and Independents, plus plenty of members on both sides of the aisle.

However, that doesn’t mean that if you traded (bought and/or sold) Bitcoin or BTC in 2021, you’re not entitled to report every transaction to the IRS. In fact, the IRS has stepped up its game when it comes to trading not only BTC but all varieties of cryptocurrencies, plus NFTs.

That said, if you should get audited in 2022 for your 2021 taxes due to a mistake in your crypto reporting, you might not want to take on an IRS audit on your own. It might be a best practice to get IRS audit help. These are professionals who can help you either get out of an audit altogether, or at the very least greatly reduce the stress and anxiety that can accompany it.

The Beginner’s Guide: How to Earn Money with Bitcoin Trading

With that said, what should you be prepared to disclose to the IRS regarding your 2021 BTC and/or crypto purchases and sales? According to a new business report, cryptocurrency investors are discovering that filing taxes for 2021 is a little more complicated than in previous years.

This is because the IRS is requesting everyone who files for a return in 2022 disclose all of their cryptocurrency trading and selling activity. For some crypto and BTC enthusiasts, this could represent the first time they are made to realize the “tax implications” of selling, buying, and engaging in crypto trades. In short, the IRS is said to look at virtual currencies like BTC and Ethereum (ETH) plus NFTs, differently from the more traditional investments and assets.

Says the IRS, specific rules must be followed if you sold and/or traded crypto assets in 2021, because after all, they want their cut of the profits. You can access your crypto tax information directly off trading platforms like Robinhood or Coinbase, or you can choose to use any one of the several varieties of crypto tax software that’s available to enthusiasts. Either way you should expect to get an accurate accounting of your activity.

Cryptocurrency Isn’t Really a Currency

Thomson Reuters tax consultant, Shaun Hunley, states that the average crypto investor must come to understand that cryptocurrency is not looked upon as a currency by the IRS, but instead, property. What this translates into is this: anytime you transact in crypto, you will either realize a gain or a loss on your taxes.

However, if you used dollars, or any other fiat currency, to purchase BTC and other cryptos in 2021, you are not required to report it on your return. But this could change in time. But if you sold crypto, it needs to be reported. Also, if you traded one crypto asset for another, that too needs to be reported.

The IRS’s Take on Cryptocurrency

Just like they’ve been doing since 2019, the IRS specifically asks about your crypto holdings for your federal and state taxes. In 2022 the 1040 US Individual Income Tax Return form will ask this question regarding cryptocurrency: “At any time during 2021, did you receive, sell, exchange or otherwise dispose of any financial interest in any virtual currency?”

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While the IRS is asking you about your receipt of crypto, they are more focused on your selling and trading activities. Again, they want their cut of the profits. Hunley goes on, if you’re simply buying crypto with U.S. dollars, and you don’t exchange or sell it, but simply hodl (a euphemism for “hold”) on your platform and/or wallet for the year, you can check “No” to the IRS’s question.

It should be noted that the IRS has also updated their FAQ page regarding cryptocurrencies regarding its 2020 policies. If, in 2020, your only activity involving digital currencies were with fiat currency, you don’t have to answer “Yes” for the 1040 Form question. For the present time, the IRS sees BTC, ETH, and other select cryptos as property. If you bought it and held it, you don’t need to report it.

But if you sold crypto, you have realized a taxable transaction, and you need to click “Yes.” Going forward, you should think twice before selling your crypto. While the digital assets are exploding in popularity and in proportion to the shrinking dollar, it might be a good idea to buy it and hold (hodl) onto it for the long term.

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