Public Law 117-58 the Infrastructure Investment and Jobs Act, could end up costing crypto investors by increasing required annual reporting from digital currency brokers starting in January 2023. A lot of crypto investors have no idea what’s coming and many still believe, incorrectly, that trading one crypto or digital asset for another is not a taxable even. This is just not true according to Enrolled Agent Steven J Weil, President of RMS Accounting.
The IRS requires investors to disclose yearly cryptocurrency activity by checking a box on their tax returns. Many filers don’t know which transactions to report.
While buying digital currency won’t prompt a tax bill, converting it to cash, trading for another coin, or using it for purchases may trigger levies.
Many crypto investors don’t understand the complex tax ramifications of cryptocurrency and often don’t have the records needed to support the taxability of their trades or exchanges. Taxable income results from the difference between the asset’s original purchase price, known as cost basis, and the value upon sale or exchange, and this can be tricky when instead of cash one crypto currency is traded for another.
The infrastructure bill will require crypto exchanges to send Form 1099-B, a federal tax document used by traditional brokerages, to report an asset’s yearly profit or loss. This will make it simpler for both the IRS and investors to track profits and losses. It will also give the IRS the tools to go after what it believes has been substantially underreported income.
It’s important to remember even without a 1099-B, investors are responsible for reporting and paying their crypto tax liability, and 2023 reporting could also give the IRS tools to use in auditing 2021 and 2022 returns from un or under reported crypto income.