Here's what's changed for crypto taxes in 2019
With the 2019 tax year filing season upon us, it’s time to consider how crypto taxes have changed in 2019.
On the 1040 Schedule 1, the IRS now asks if you’ve owned crypto
The IRS has sent special letters to crypto holders advising them to properly pay their crypto taxes
New IRS guidance was released specifically concerning the tax treatment of hard forks and airdrops as well as the approval of specific identification accounting (like FIFO, LIFO, and Minimization)
You can now import up to 2251 sales per tax year into TurboTax (the limit last year was 250)
In this article, we’ll go into detail on all these new crypto tax developments. Whether this is your first time filing crypto taxes or whether you’ve filed for previous years, you’ll learn what’s new with filing crypto taxes in 2019.
The IRS's new crypto question on the 1040 Schedule 1
In October 2019, the IRS released a draft of the 1040 Schedule 1 “Additional Income and Adjustments to Income” that asked taxpayers whether they had held or transacted cryptocurrency.
This question has made it into the final addition of the form, meaning that millions of taxpayers will answer whether they had a financial interest in crypto. You also use this form if you are declaring crypto income, like mining, staking, or interest income, as an individual.
Be sure to check out our complete guide to crypto tax filing, updated for 2019, to be up to date on all the forms necessary for your tax return.
Increased IRS crypto enforcement focus
In the summer of 2019, thousands were surprised to receive a letter 6173, 6174, or 6174-A in the mail from the IRS. These letters, coupled with public statements from IRS officials regarding crypto, make it clear that the IRS has a new expanded focus on ensuring proper crypto tax filing compliance. It’s now more important than ever to be properly compliant with the IRS.
The IRS has also sent crypto traders CP2000 notices. In many cases, the suggested owed amounts on these notices are much higher than they should be. This is because the IRS requests information from some fiat onramp exchanges like Coinbase, but this information often does not sufficiently demonstrate one's actual gains (or losses).
Be sure that you are correctly filing your crypto taxes. Tax software like TokenTax helps you accomplish this process properly from beginning to end.
Hard forks and airdrops are now to be treated as income
In new IRS crypto guidance released in October, it was clarified that hard forks and airdrops should be treated as income. This means that, for example, if BTC forks and you receive coins of the new forked currency (like Bitcoin Cash), then you must report income on the coins received. The income you report is the market value of the new coins at time of receipt.
The same applies to airdrops, i.e. coins you receive for free, often as a promotion. This new policy has not been without controversy, with many concerned that unwanted forks and airdrops could result in taxes owed. However, bear in mind that you will only owe tax on the actual market value of the coins received, meaning that airdrops of worthless coins won’t result in taxes owed.
Be sure to consult our article on hard forks and airdrops in order to correctly include any income with your crypto taxes.
Specific identification accounting is allowed for crypto
Specific identification is selectively matching up cost basis and proceeds. For example, if you bought 1 BTC at $3,000, 1 BTC at $5,000, and 1 BTC at $8,000, and you later sell 1 BTC at $10,000, specific identification lets you decide which cost basis you choose — $3,000, $5,000, or $8,000.
Using this example, if you used TokenTax’s minimization accounting method, the $8,000 cost basis would be specifically identified so as to show the lowest amount of gains when you sell that 1 BTC at $10,000.
Last October’s IRS crypto guidance specifically stated (pun intended) that specific identification is in fact allowed for crypto, meaning that it’s within compliance to intelligently use accounting methods for advanced tax planning, like deferring higher gains to long term.
More transactions can be imported into TurboTax
Last but not least, we’re happy to share that 2251 crypto transactions can be imported from TokenTax into TurboTax. Previously, last year’s limit was 250, which resulted in many with higher transaction counts needing to send in their full 8949s by mail to the IRS.
Learn more about seamlessly exporting your crypto tax documents from TokenTax into TurboTax via our complete guide on crypto taxes and TurboTax.
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