The U.S. Internal Revenue Service, or IRS, has updated its FAQ section on cryptocurrency transactions. The new FAQ details that investors who have only purchased virtual currencies with fiat currency, do not need to report their transactions under the virtual currency question.
IRS Updates on Crypto Reporting Guidelines
The first page of the U.S. citizens’ Individual Income Tax Return form, also known as Form 1040, asks whether the respondent received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency during 2020.
Clarifying on this, the IRS updated its guideline that reads:
“If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer yes to the Form 1040 question.”
Cryptocurrency purchases made in fiat are not subjected to any type of IRS tax reporting according to the IRS FAQs on cryptocurrency.
Prior to the updated guidance from the IRS, taxpayers were confused whether purchasing cryptocurrency in the U.S. dollar would require them to check “yes” or no on the virtual currency question.
In contrast, if the investors purchased cryptocurrencies with other cryptocurrencies, they have to check the “yes” button on the Form 1040 question and that the transactions must be reported.
Owing to the unclear instructions, some of the taxpayers resorted to the “yes” button even when they purchased cryptocurrency using the U.S. dollar. The investors assume that checking the yes button signifies interest in virtual currency.
Crypto Taxation Guidelines Still Unclear Globally
Cryptocurrency taxation guidelines are still unclear in most countries. For instance, a report compiled by the Law Library of Congress and commissioned by Republican representative, Tom Emmer, last month revealed the situation of the crypto taxation situation.
As per the report, only five countries have established taxation guidance for cryptocurrency investors.
The latest guidance from the IRS provides more clarity to taxpayers involved in crypto assets.