This article was updated for Tax Year 2023, last edited on January 24th, 2024.
Per the IRS, digital assets are “broadly defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary [of the Treasury].”
Digital assets can include, but are not limited to:
Virtual currency or cryptocurrency: unregulated digital currency that can be used as a substitute for real currently. The IRS classifies cryptocurrency, such as Bitcoin and Ethereum, as virtual currencies.
Stablecoins: cryptocurrencies whose value is pegged to another currency
Non-fungible tokens (NFTs): assets that have been tokenized via a blockchain with unique identification codes and metadata, such as digital art or collectibles
According to the IRS, digital assets are not considered real currency because they are not coin and paper money associated with the United States or any other country and are not digitally issued by a government’s central bank. Receiving virtual currency can count as income and trading virtual currency can count as a capital gain. Since virtual currency is taxed as property they are generally subject to capital gains tax and completion of a Schedule D for capital gains/losses.
Please note that not all digital asset marketplaces report the information the same, so it is important to have a full understanding of the documentation and manner in which digital assets are received to correctly report your digital assets on your tax return.
The 1040 form for filing a tax return will ask the following question:
“At any time during 2023, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
The IRS recommends following these steps when determining how to answer this question.
This content is provided for informational purposes only and should not be construed as tax, legal, financial, accounting, or other advice. Rules and regulations vary by location and are subject to change, so please consult with an expert if you need advice specific to you.
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