Digital Asset - What is it? How to report it properly?

Navigating Digital Assets on Your 2023 Tax Return: What You Need to Know

Taxpayers filing 2023 tax returns must now indicate if they received digital assets as a reward, award, or payment for property or services, or if they disposed of any digital asset held as a capital asset through a sale, exchange, or transfer.

Digital assets are representations of value recorded on secure, distributed ledgers, including virtual currency, cryptocurrency, stablecoins, and non-fungible tokens. Transactions involving digital assets include selling them, receiving them for goods or services, acquiring them through mining or staking, or getting them due to a hard fork.

It's crucial to report all income from digital asset transactions. Use Form 8949 for capital gains or losses and report them on Schedule D (Form 1040). Gifts involving digital assets require filing Form 709.

For digital assets received as compensation or used in a business, report the income like other income types. For employee wages paid with digital assets, report the asset value as wages on Form 1040 or 1040-SR. Independent contractors paid with digital assets report the income on Schedule C (Form 1040), which is also used for business-related digital asset sales or exchanges.

If you need assistance understanding or reporting digital asset transactions, please reach out to us for expert guidance.