IRS Attention Affecting Crypto Investors Like Kryptonite
If you suddenly feel as though you were a superhero cryptocurrency investor exposed to kryptonite, you are not alone. The IRS tends to have that effect. (If you’re not a Superman fan, Kryptonite was the only thing that could sap every bit of strength and power from him.) With the IRS increasingly turning its attention to digital currencies and non-fungible tokens (NFTs) many investors are feeling weaker and weaker as the IRS gets closer and closer to taking a large chunk of investors’ profits.
Even though this tax season has come to a close, you might be a taxpayer who got a crypto-jolt since the IRS Form 1040 now has an overreaching question that must be answered which asks if you’ve had any type of transaction related to a virtual currency during the tax year. Simply buying crypto isn’t a taxable event. You can buy and hold without any taxes even if the value increases. Cryptocurrencies are only taxed when sold, traded, off ramped, or disposed of in any way and a gain is recognized.
In the 2023 tax season a law goes into effect requiring notification to the IRS of transfers of at least $10,000 in cryptocurrency. However, as one report points out, “Currently crypto exchanges are required to file a 1099-K for clients who have more than 200 transactions and more than $20,000 in trading during the year.” https://www.fool.com/investing/stock-market/market-sectors/financials/cryptocurrency-stocks/crypto-taxes/
It was nice while it lasted, but investors had to know that the IRS and its kryptonite effect would eventually arrive to weaken their cryptocurrency superpowers. Somewhere though, in a galaxy far, far away, I imagine someone is conjuring up another way for investors to once again profit anonymously, at least for a while, before the IRS figures how to get in on the action.