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Virtual currencies such as Bitcoin or other "cryptocurrencies" are taxed differently from cash or coin currency.

The IRS generally recognizes virtual currency as property, not legal tender. As such, virtual currency received as payment by an individual or business must be included as miscellaneous income as an exchange of property or service. The value of the payment is determined by the Fair Market Value (FMV) on the date of receipt. The virtual currency must be translated to the legal tender equivalent and then included in income.

Per IRS Instructions for Form 1040 and 1040-SR, page 16:

Digital Assets (Virtual Currency)

Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology.  For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.  If a particular asset has the characteristics of a digital asset for federal income tax purposes. 

Check the "Yes" box next to the question on digital assets on page 1 of Form 1040 or 1040-SR if an any time during 2022 you (a) received (as a reward, award, or payment for property or services); or (b) sold, exchanged, gifted, or otherwise disposed of a digital asset (or any financial interest in any digital asset).

For example, check "Yes" if at any time during 2022 you:

  • Received digital assets as payment for property r services provided;
  • Received digital assets as a result of a reward or award;
  • Received new digital assets as a result of mining, staking and similar activities;
  • Received digital assets as a result of a hard fork;
  • Disposed of a digital asset in exchange or trade for another digital asset;
  • Sold a digital asset
  • Transferred digital assets for free (without receiving any consideration) as a bona fide gift; or
  • Otherwise disposed of any other financial interest in a digital asset. 

The following actions or transactions in 2022, alone, generally don’t require you to check “Yes”;

  • Holding a digital asset in a wallet or account;
  • Transferring a digital asset from one wallet or account you own or control to another wallet or account that you own or control; or
  • Purchasing digital assets using U.S. or other real currency, including through the use of electronic platforms such as PayPal and Venmo.

Do not leave the question unanswered. You must answer “Yes” or “No” by checking the appropriate box. For more information, go to IRS.gov/virtualcurrencyfaq.

Related Links

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the webpage or document at the time it is accessed.

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