The IRS has brought about a substantial transformation in the U.S. blockchain sector by implementing a fresh tax reporting law for “digital asset” trades, including crypto, starting from January 1, 2024.
In a bid to crack down on money laundering, individuals and businesses receiving $10,000 or more in digital assets must report the transaction (including names, addresses, SS numbers, etc.) to the IRS within 15 days.
Coin Center, a crypto policy advocate, highlights the new regulation’s profound implications, noting that non-compliance with this “new crypto tax reporting” will lead to felony charges, as emphasized by the company’s executive director, Jerry Brito:
New crypto tax reporting obligations took effect on Jan 1.
If you receive $10k or more in crypto you now have an obligation to report the transaction (including names, addresses, SS numbers, etc.) to the IRS within 15 days under threat of a felony charge. pic.twitter.com/wyRsfJEpMo
— Jerry Brito (@jerrybrito) January 2, 2024
The Puzzle of NFT Reporting
While it’s apparent that the new rule applies to crypto holders and businesses dealing with a large sum of digital currencies, recent discussions regarding the classification of NFTs have sparked debates.
Although reports suggest that businesses must report transactions over $10,000 in digital assets, including direct sales and trades, the ambiguity lies in whether NFT transactions fall under this category.
Some argue that flipping an NFT, even at a loss, requires reporting, while others disagree:
This is false
When you flip an NFT for a profit you will pay a capital gains tax on it which will go into Form 8949
This is misinformation
— Cole (@ColeThereum) January 3, 2024
Additional Grey Areas
Moreover, these guidelines also introduce complexity and potential compliance burdens for DAO participants, with factors like whether DAO involvement is a full-time, primary income source and year-round engagement needing consideration.
A similar assessment applies to airdrop farmers; full-time airdrop farmers may face reporting obligations, while one-time airdrop recipients may not.
On the other hand, for stakers, those who stake alongside another primary income source may be exempt from IRS reporting. In contrast, professional staking pool operators earning commissions may have to report requirements.
Who really has a "Trade or business" here and is subject to 6050I reporting?
Taxpayer A: stakes on a major exchange and receives X amount of rewards each year. He has an FT job (main source of income).
Taxpayer B: Runs an organized/professional staking pool. Promotes the pool…
— Shehan (@TheCryptoCPA) January 3, 2024
In light of these significant changes ushered in by the IRS crypto law for digital asset trades, it becomes increasingly apparent that there is a pressing need for the IRS to provide further clarification and guidance.
Clarity and transparency are essential for blockchain enthusiasts, businesses, and stakeholders to navigate these new rules effectively. Meanwhile, it’s essential to stay vigilant when garnering and trading big bucks on-chain.
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*All investment/financial opinions expressed by NFT Plazas are from the personal research and experience of our site moderators and are intended as educational material only. Individuals are required to fully research any product prior to making any kind of investment.
