The IRS is watching digital ‘assets’

The Internal Revenue Service doesn’t consider cryptocurrency to be actual money. But it does consider it a valuable asset, and if you made dollars on bitcoins and other cryptocurrencies, that money would be taxed.

On the other hand, following the $1.4 trillion crypto industry drop in value in 2022, you could get some tax relief if you had substantial losses, as many did.

Expect the IRS to pay close attention to crypto and other digital assets, such as NFTs (non-fungible tokens). The IRS now asks tax filers if: At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?

Congress also beefed up reporting requirements for exchanges and other organizations. While some reporting measures were delayed this year, expect more of a paper trail going forward.

It’s been a tough year for crypto trading, with one of the largest exchanges, FTX, imploding under the weight of alleged fraud and mismanagement. At one point, FTX CEO Sam Bankman-Fried was considered a billionaire. Now he faces complicated legal battles and potentially long jail sentences. Many crypto traders have lost money this year, but regardless, Americans will need to report crypto income and losses to the IRS.

The crypto industry’s trillion-dollar losses in 2022 are believed to be greater than the nominal GDP of Spain in 2021, which was estimated at $1.28 trillion. Exchanges, investment funds, and others have been hit hard, with some organizations and individuals now all but bankrupt.