- According to IRS FAQs, cryptocurrency purchases made in USD are not taxable.
- The recent update does not include crypto to crypto purchases.
The US Internal Revenue Service (IRS) recently updated its Crypto FAQs. The newly amended Q5 now states that crypto purchases made in fiat are not taxable.
Source: IRS
It’s tax season in the USA as the April 15 deadline draws closer. However, based on Q5 on the IRS Crypto FAQs, Form 1045 was confusing some crypto tax reporters.
Q5 states,
“The 2020 Form 1040 asks whether at any time during 2020, I received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency. During 2020, I purchased virtual currency with real currency and had no other virtual currency transactions during the year. Must I answer yes to the Form 1040 question?”
The phrasing of the question left some crypto investors confused as to how to answer the Form 1040 question. On one hand, a positive response could lead to being taxed, while on the other, answering ‘no’ could lead to a falsified report. Failure to correctly comply with IRS reporting is a punishable offense.
As such, the clarity added by the recent FAQ update will help crypto holders stay out of trouble. As shown in the image above, the question exempts buyers that used fiat money to make a crypto purchase. However, this means crypto-to-crypto purchases must be reported.
The update comes at a time when crypto adoption is rising thanks to big corp interests and random tweets from some high-profile individuals. Top crypto Bitcoin’s market cap also recently passed the $1 trillion mark.
This article first published on coinquora.com
