Digital Assets and Taxes

Digital assets are new to most taxpayers and the IRS has issued guidance and rules on how transactions related to digital assets are reported.

The IRS considers cryptocurrency, virtual currency, and NFTs to be digital assets - there are other items that may be considered digital assets. Basically, if an asset has the characteristics of a digital asset, it is treated as a digital asset for federal income tax purposes.

Taxable transactions of digital assets occur when:

• digital assets are received for payment of services or property sales, gifts/awards, from mining/staking, or as a result of a hard fork or air drop

• transfers as a gift

• disposal of digital asset in exchange for property/services, such as in bartering or as payment of wages

• exchanging one digital asset for another

• sales of digital assets

The transaction value must be recorded in US dollars and at Fair Market Value at the time of the transaction.

Digital assets is a fast growing area and it is important for taxpayers to be aware of the impact of their digital asset transactions. It is also extremely important that good records and transaction history is maintained.

All information contains general information for taxpayers and should not be relied upon as advice. Taxpayers should seek professional tax advice for information about your specific situation.