• The Internal Revenue Service (IRS) is revamping its crypto reporting requirements for 2022.
• Crypto is now being referred to as “digital assets” and taxpayers will be asked questions about receiving, exchanging, gifting or disposing of digital assets on their 1040 income tax form.
• Abhinav Soomaney, managing partner at Crypto Tax International, states that tracking NFTs and tokens transferred from one wallet to another can be a challenge and IT teams are working to pull appropriate information directly from the blockchain.
IRS Revamps Crypto Reporting Requirements
The Internal Revenue Service (IRS) has been prompted to revamp its crypto reporting requirements due to record-high adoption in 2022. Rather than referring to crypto as „virtual currencies“ it will now be known as „digital assets“ and taxpayers must answer a series of questions about their activity with these digital assets on their 1040 income tax form.
Tracking Transfers Difficult for Accountants
Abhinav Soomaney – a managing partner at Crypto Tax International – says tracking NFTs and tokens transferred from one wallet to another can be difficult for accountants. To overcome this issue, an IT team has been integrated which plugs in codes to pull appropriate information directly from the blockchain. A manual transfer analysis combines all transfers made by the client in chronological order so that the cost basis and date acquired for tokens transferred can be accurately tracked.
Ignoring Regulations Unwise
Soomaney warns people against intentionally ignoring these regulations stating that it would be very unwise to do so. He believes that people should take extra care when filing taxes related to digital assets so both public and private sectors are happy with the process followed by taxpayers.
NFT Tax Calculations Also Challenging
In addition to tracking tokens sent between wallets, Soomaney also states that NFT tax calculations present a challenge since they involve sending Ethereum (a cryptocurrency) from the buyer’s wallet to the seller’s wallet and creating a new cost-basis pool – making it hard for accountants to track what is taking place accurately.
The IRS is no longer referring to crypto as „virtual currencies“ but as „digital assets.“ This change presents unique challenges when it comes time for taxpayers to file their taxes each year; however, IT teams have been integrated into accounting firms in order help make sure everything runs smoothly when filing taxes related to digital assets such as cryptocurrencies or non-fungible tokens (NFTs).