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MA Conformity w/ IRS Code 1-1-22 Digital Asset Income

Terranova & Associates, LLC strives to keep our clients up to date regarding tax changes that will impact them. Our friends at the Internal Revenue Service issued IR-2023-12 on January 24 and 2025, 2023 that reminds taxpayers to properly report Digital Assets and Digital Asset Income.

This appears to be a gentle reminder by the IRS that they are monitoring all Digital Asset reporting and will be verifying compliance with this issue.

The IRS has reminded taxpayers that they must report all digital asset-related income when they file their 2022 federal income tax return, as they did for fiscal year 2021. The term "digital assets" has replaced "virtual currencies," a term used in previous years.

All taxpayers must answer the question regardless of whether they engaged in any transactions involving digital assets. A digital asset is a digital representation of value which is recorded on a cryptographically secured, distributed ledger. Common digital assets include convertible virtual currency and cryptocurrency, stablecoins and Non-fungible tokens (NFTs).

What is a digital asset?

A digital asset is a digital representation of value which is recorded on a cryptographically secured, distributed ledger. Common digital assets include:

· Convertible virtual currency and cryptocurrency

· Stablecoins

· Non-fungible tokens (NFTs)

When to check ‘Yes’

Normally, a taxpayer must check the “Yes” box if they:

· Received digital assets as payment for property or services provided;

· Transferred digital assets for free (without receiving any consideration) as a bona fide gift;

· Received digital assets resulting from a reward or award;

· Received new digital assets resulting from mining, staking and similar activities;

· Received digital assets resulting from a hard fork (a branching of a cryptocurrency's blockchain that splits a single cryptocurrency into two);

· Disposed of digital assets in exchange for property or services;

· Disposed of a digital asset in exchange or trade for another digital asset;

· Sold a digital asset; or

· Otherwise disposed of any other financial interest in a digital asset.

How to report digital asset income

Besides checking the “Yes” box, taxpayers must report all income related to their digital asset transactions. For example, an investor who held a digital asset as a capital asset and sold, exchanged or transferred it during 2022 must use Form 8949, Sales and other Dispositions of Capital Assets , to figure their capital gain or loss on the transaction and then report it on Schedule D (Form 1040), Capital Gains and Losses , or Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return , in the case of gift.

If an employee was paid with digital assets, they must report the value of assets received as wages. Similarly, if they worked as an independent contractor and were paid with digital assets, they must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) . Schedule C is also used by anyone who sold, exchanged or transferred digital assets to customers in connection with a trade or business.

When to check ‘No’

Normally, a taxpayer who merely owned digital assets during 2022 can check the “No” box as long as they did not engage in any transactions involving digital assets during the year. They can also check the “No” box if their activities were limited to one or more of the following:

· Holding digital assets in a wallet or account;

· Transferring digital assets from one wallet or account they own or control to another wallet or account they own or control; or

· Purchasing digital assets using U.S. or other real currency, including through electronic platforms such as PayPal and Venmo.

For more information, see page 15 of the Tax Year 2022 1040 (and 1040-SR) Instructions. For a set of frequently asked questions (FAQs) and other details, visit the Digital Assets page on

We are available for consultations regarding this and other tax matters if you need assistance, please contact us. We are excited to welcome the new clients that have retained our services!

This is our update as of this time and we will strive to keep you informed; please keep in mind this is a fluid topic and subject to change at any time.

This information should be used to strategically navigate through the months ahead. We are in the office and are happy to assist you.

Please feel free to share this with your relatives and friends and remember we are here to help our clients.

Terranova & Associates, LLC.

Thomas D. Terranova, Jr., CPA, PFS, CITP

Click below to find the full article!

2023 01 2 - Digital assets (002)
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