This week, the U.S. Internal Revenue Service (IRS) took action to update its rules to account for non-fungible tokens (NFTs).
The Treasury Department’s tax division recently released an updated version of its form 1040 instructions for 2022 that replaces the outdated category for “virtual currency” with more inclusive new language on “digital assets,” including mentioning NFTs.
The draft instructions define digital assets as any digital representations of value that are stored on a distributed ledger that is cryptographically secured or any other similar technology. Non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins, are examples of digital assets.
The “virtual currency” part of the U.S. tax-filing guidelines from the prior year was a more specific description of a digital token that serves as an accounting unit, a value store, or a means of exchange. Since the final tax regulations have not yet been made public, the crypto section may still undergo changes before becoming law.
According to this paper by the IRS, cryptocurrency investors who gifted, sold, exchanged, or transferred any digital asset in 2022 that they held as a capital asset will need to figure out and record their taxable income.
Previously the Internal Revenue Service’s (IRS) website said — “When you sell virtual currency, you must recognize any capital gain or loss on the sale.”
A bill that would exempt Americans from reporting any transactions up to $50 or any deal in which they gain less than $50 has been proposed by prominent U.S. senators in an effort to free Americans from monitoring taxes every time a cryptocurrency transaction takes place, according to a new proposal by Senators Kyrsten Sinema (Democrat) and Patrick Toomey (Republican).
However, it has a challenging road ahead of it as Congress prepares to start a lengthy August break prior to the midterm elections. Even while efforts to regulate stablecoins have made some progress, most congressional experts predict that significant legislative reform for the cryptocurrency sector won’t take place until 2023.