22 Mar 2021 Update on 1040 Virtual Currency Question
On the 2020 Form 1040 we are required to answer this question: “At any time during [the prior year], did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
When is a transaction, not a transaction? The IRS recently updated their Q&A to further define what is not a virtual currency transaction for IRS purposes.
The agency says that individuals who (1) purchased virtual currency with real currency, and (2) had no other virtual currency transactions during 2020, do not have to answer “yes” to the virtual currency transaction question on their 2020 return. Learn more.
Here’s the IRS Q&A:
Q5. 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?
A5. No. 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.
Despite the “otherwise acquire” phrase in the question, buying cryptocurrency with actual, real U.S. money is not a financial transaction.
For more information read Haynie & Company’s 2021 Virtual Currency – Reporting & Enforcement Update.