Crypto is the first question on IRS Form 1040 in 2022 [pdf]
irs.gov
irs.gov
https://www.irs.gov/pub/irs-prior/f1040--2020.pdf https://www.irs.gov/pub/irs-prior/f1040--2021.pdf
“Digital asset” seems like a VERY broad term just looking for perjury.
Not that the entire concept of how one files taxes in the US isn’t one big perjury trap already, it just seems less and less subtle about it with each iteration.
You almost always can’t sell it officially.
If a video game company decides my points are now worth half as much, or that they’ve expired, that’s their prerogative — and if I don’t like it that’s too bad. If a bank tried to do that, they’d get hit with a ton of lawsuits that they’d definitely lose.
The point I'm trying to make is that it's not fundamentally as different from an in-game currency as you think it is. The cycles just happen much less frequently over longer periods of time (companies go bankrupt and change faster than wars happens) so you may never see it in your lifetime if you're lucky.
[0] https://www.timesofisrael.com/lebanese-cafe-owner-hailed-for...
So Starbucks stars, United miles, etc don't count.
https://www.irs.gov/businesses/small-businesses-self-employe...
A bank account representing dollars in the account is by definition storing your digital assets. Did you receive dollars in an electronic account?
> Digital assets are not real currency (also known as “fiat”) because they are not the coin and paper money of the United States or a foreign country and are not digitally issued by a government’s central bank.
Most assets in circulation that we use as money are not fiat!
The central bank issues money to banks. The treasury may mint coins or print paper money (the greenback). Those are legal tender (which btw the Supreme Court of the United States struck down the Legal Tender Act as unconstitutional, but President Grant stuffed the court with two justices and they reversed this ruling in their very next session).
If your federal government issues a CBDC or mails checks to you drawn on the treasury, that is fiat.
If your local bank employe an underwriter to review your business and approve a LOAN to you, they just create a balance within the bank. The existence of the FDIC and Federal Reserve does NOT make this money fiat.
Anyway, your credit card balance is NOT legal tender. No one has to accept it as payment of a debt. The only reason it is accepted is that merchants are willing to contract with Mastercard and your issuing bank. But they don’t have to. Many merchants decline the payments.
Same with Venmo and all those other systems. Sorry but it’s NOT fiat.
You may deposit fiat into a bank, and it will give you a balance. Their terms probably state that they can lend out your money and not have an obligation convert it all back to actual fiat currency (eg cash and coins). The bank may use the Automated Clearing House system (ACH) run by the Federal Reserve to send money to, say, Venmo or PayPal or another bank. Those companies then give you a balance. But that isn’t fiat, either.
Bitcoin is just a decentralized PayPal. And the internal credits are a floating exchange rate instead of maintaining a peg. You buy some amount of a digital asset — whether denominated in dollars or bitcoins — and it is stored on a ledger. That’s all. Whether the ledger is inside PayPal or on a public blockchain is irrelevant.
If you received a payment inside Venmo, you received some amount of a digital asset. You would owe income taxes same as if you received an in-kind payment in spaghetti!
The IRS considers the funds you have on deposit with a bank (in the form of Commercial Bank Money) to be currency for the purpose of taxation. They also consider the funds your have on "deposit" (in the form of Nonbank Money) with non-bank financial services to be currency for the purpose of taxation.
Finally, they consider your digital assets, defined above, to be property for the purpose of taxation.
Edit: to be maximally precise, digital assets are considered non-currency property.
If you received a digital balance in a bank account, you've received digital assets. They are not issued by a central bank nor are they fiat. So by your definition you gave, they are in fact digital assets, and you have to check the checkmark! That's my point.
You can try to argue that digital bank balances in a database are not digital assets, but I wouldn't risk it.
Here is a non-exhaustive list of Tasty Foods: Fruits, Vegetables, Meat. If you had a Tasty Food, you have to report it. You had fish. Should you report it?
> Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.
Obviously, V-Bucks are not a "representation of value" and are not "recorded on a cryptographically secured distributed ledger or any similar technology".
The problem with tax rules is that they are open to interpretation and if the taxman interprets them differently then you have a real problem. The better answer would have been to ask a tax lawyer if the op is genuinely concerned about this (which they may well be, for instance because they have a substantial amount of value stored that way).
Neither of those things are at all obvious. They are very much a "representation of value", and for all I know Epic might record them in a cryptographically secured distributed ledger (indeed that seems like a pretty good idea for resilience).
No one is saying that loot boxes and what-have-you aren't problematic. But it is only mildly relevant.
> Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange. Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency. The IRS uses the term “virtual currency” in these FAQs to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.
Video game currencies are (generally, if your game lets you convert the in-game currency to USD you might actually want to report it) NOT:
1. A store/representation of value
2. Convertible to a real currency
3. A medium of exchange
This implies that things that aren't virtual currencies can still be a "representation of value".
> Video game currencies are (generally, if your game lets you convert the in-game currency to USD you might actually want to report it) NOT:
> 1. A store/representation of value
How are they not? Certainly under the plain face meanings of those words they are. There's a reason we call them "currencies".
Of course, for example: stocks/bonds.
> How are they not? Certainly under the plain face meanings of those words they are. There's a reason we call them "currencies".
They only have value in the video game world of Fortnite, not the real world. Nobody accepts V-Bucks for payment of goods/services.
On that note, where does it say it needs to be convertible back into USD? It's only "unconvertable" once its redeemed. Plus, you can always sell your account, despite it being against TOS.
Obviously the IRS doesnt care one way or another if the value of the vbucks is pegged or inflates, as there would be no capital gains.
That can be pretty shakey though.
I would say that dollars recorded electronically are also a digital asset. The vast majority of the population should answer YES rather than risking perjury.
What I am worried about is that the government can take a two-step approach to ban ANY inconvenient mechanism from being used by the public:
1) Force the developers to declare their mechanism as an X (money transmitter, or exchange, or communication platform)
2) Then regulate X by forcing all developers of X to require their users to provide Y.
So this way they can for example ban encryption. In Monaco and Dubai, it is technically illegal to use end to end encrypted messengers except the ones with backdoors (eg BOTIM).
If you think you can stay in some offshore jurisdiction, just remember that FATCA is global and pressures all countries to comply eventually.
The only reason the public has any freedoms at all is because the makers of browsers and operating systems have not been pressured yet into banning every website that doesn’t register with the government. However, with HTTP3 we are going to see that, encryption certificates will be treated just as “official BIOS bootloaders” of OSes 10 years ago. See “the war on general purpose computing” by Cory Doctorow. It’s coming.
Update: it’s already here in China: https://www.zdnet.com/article/china-is-now-blocking-all-encr...
Thus, for example, they can't just tell browser makers to "ban websites we don't like". But if they make everyone register an https certificate, and every browser maker to register their browser, and every operating system maker to register their operating system, and every computer manufacturer to register their computer, then they can make it hard for a computer manufacturer to obtain parts for their computer, or a license to install the operating system, or vice versa, by leaning on the other registered entities.
Seems like a great field of legal scholarship right now!
Honestly everybody actually knows the difference, if you don’t hire a lawyer and go to court and add to caselaw to be sure.
Second point, sure, but this one? I would disagree vehemently that its obvious.
I've always thoughts "points" from credit cards, gift cards in shops, or virtual currencies in a game world that you can exchange directly for fiat/crypto, represent value. Its just that value is now no longer liquid and locked into some services ecosystem to make it psychologically easier for people to spend money.
In my mind, (normative statement incoming) V-bucks and similar digital practices should not be legal. They should be required to have a tradable interface, and it should be possible to put them on a marketplace.
AFAIK redeemed V-Bucks cannot be transferred, and thus cannot be exchanged for real money.
A V-Bucks gift card has financial value, and (if the account is allowed to be transferred) you could say the account then has financial value. IANAA, but I would expect gains from sale of either to be taxable.
The instructions “include” a few obvious things. They don’t “exclude” anything like V-bucks.
So what constitutes a “representation of value”?
I can buy and sell V-Bucks cards, can I not?
It may sound like I’m being a bit obtuse, but there is nothing here that tells me whether my ultra rare skin that I received that I could sell my account for $100 on eBay applies or not.
Many things are obviously a digital asset, but determining what isn’t is far trickier, especially once you move away from perhaps the easiest example of digital currency in Fortnite.
Saying “obviously they’re targeting Bitcoin and the Charlie Bit My Finger NFT” tells me what I already know I should declare. Nothing tells me what I shouldn’t… almost like they can decide that whenever they want during an audit.
And more generally the guidelines the require you to provide the capital gains or loses, I don't think there's a secondary market for such in game items to be redeemed for dollars or equivalents.
(Now there is something funny here about MTGO and the set redemption mechanic, so you could argue that MTGO cards are digital assets, but MTGA cards aren't).
Even games without trading (or the ability to do lootboxes with real money) have the potential to create a secondary market, since you can always sell accounts. My OSRS party hat has some real world market value. I don't need to count it as income on my taxes.
When you traded the asset for dollars, or when you received the asset from steam?
IIRC this created problems for Blizzard when they did the real money auction house on Diablo III, and was part of why that was ended.
But those usually have more developed secondary markets where prices can be widely known (and also nontrivial value). I can at least see the argument.
I know that's probably obvious to you, but I don't think there's much more to it. It's just another way to make money.
> there is nothing here that tells me whether my ultra rare skin that I received
> that I could sell my account for $100 on eBay applies or not.
> Almost everything you own and use for personal or investment purposes is a
> capital asset. Examples include a home, personal-use items like household
> furnishings, and stocks or bonds held as investments. When you sell a capital
> asset, the difference between the adjusted basis in the asset and the amount
> you realized from the sale is a capital gain or a capital loss.
1) As a heads up to people that may not have realized that crypto gains are taxable.
2) To force you to lie if you want to conceal gains, so you can't claim ignorance later.
A $100 gain on a skin that you sell on ebay (less your cost basis, however that might be computed) has _always_ been a taxable event and the failure to declare it is minor tax evasion of the type that literally everyone is guilty of. But the IRS doesn't particularly care about small beer like that. The crypto question is there because for some people there's serious money involved.
(IANAL, but if you have any question at all about this a CPA or tax attorney is well worth the cost)
The question is "do I need to check that digital currency box?"
On the off chance you later sell your account, you should pay taxes on that income and it mostly comes out in a wash, unless the value of the lootbox item has changed significantly (because no one plays fortnite anymore)
Do you not see how that is different from telling someone without qualification that something is legal/illegal?
> Desmond demurred when asked to confirm that gamers wouldn’t need to mark
> ‘yes’ to the new 1040 question, but said addressing gaming currencies in
> the virtual currency context isn’t a major focus for the agency right now.
>
> “I am not even looking into that. So I’m not saying one way or another.
> I think I’d be getting ahead of myself if I said anything,” Desmond said.
> “Read the website. We posted a correction yesterday and I kind of leave it
> at that.”
[1] https://news.bloombergtax.com/daily-tax-report/irs-pulls-wor...
[2] https://news.bloombergtax.com/daily-tax-report/calling-fortn...
If you somehow made $100k off V-Bucks then you need to report that income, but you should say "No" to the question about digital currencies.
(Disclaimer: I can't believe I have to say this, but if you are making significant money off of video game currencies you should talk to a professional rather than listening to an anonymous HN poster as your sole tax advice)
Additionally, I think that your definition of "digital currencies" is little bit strict. IRS isn't going to look definitions, that exclude taxable income. User semiquaver already posted snippet from "Bloomberg Tax", showing potential interest for gaming currencies.
One could argue that exchanging in-game currency for game time is a taxable benefit of, say, $15/mo to the player; which then falls below the US 1099 reporting threshold of $600/year due to its irrelevance for taxation purposes.
If you can construct a case that an item purchased in a game can then be sold for value, and that you can then receive benefits of $600 USD or more within a single calendar year in return for your purchased item, then you have identified a possible taxation loophole that should be corrected; please do share!
(I am not your lawyer, this is not legal advice.)
In other words: the standard for perjury on your tax forms is very high, much higher than the unintentional mistakes that the IRS is aware millions of people make each year.
https://www.irs.gov/individuals/international-taxpayers/freq...
Coinbase directs its US users to CoinTracker, which you can then import into (say) TurboTax.
https://www.irs.gov/instructions/i1040gi#en_US_2022_publink1...
> For example, check “Yes” if at any time during 2022 you:
* Received digital assets as payment for property or services provided;
* Received digital assets as a result of a reward or award;
* Received new digital assets as a result of mining, staking, and similar activities;
* Received digital assets as a result of a hard fork;
* 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;
* Transferred digital assets for free (without receiving any consideration) as a bona fide gift; or
* Otherwise disposed of any other financial interest in a digital asset.
And points you to fill out Form 8949, Sales and other Dispositions of Capital Assets.
> Use plain language in any document that: is necessary for obtaining any federal government benefit or service or filing taxes
Oh, well.
It seems to me that the "Steam Achievement" cards that you can sell/give away that you get for playing a game follows this line of thinking.
My steam wallet now has $0.23 of value from the sale of these "digital assets".
https://oll.libertyfund.org/title/spooner-no-treason-no-vi-t...
-3
The IRS describes the term "digital assets" here: https://www.irs.gov/instructions/i1040gi#en_US_2022_publink1...
There is a service out there willing to buy NFTs for almost nothing to help folks realize losses if desired. A quick internet search should find it.
Edit: found it https://twitter.com/coinledger/status/1599787141844054016
https://www.irs.gov/businesses/small-businesses-self-employe...
"Digital assets are broadly defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.
"Digital assets include (but are not limited to):
- Convertible virtual currency and cryptocurrency
- Stablecoins
- Non-fungible tokens (NFTs)"
I would have thought that "digital assets" existed before there was any "cryptographically secured distributed ledger or any similar technology."
For example, a record label might own the original recordings of a 1995 song as a set of files. Legally, they own the copyright in the recording, but the copyright alone isn't enough because the copyright loses its market value if the associated files get destroyed. In other words, the files are 1) digital and 2) assets, because if someone bought the recording, they would reasonably expect to get both the copyright and the files.
“You keep using that word. I do not think it means what you think it means.” -Inigo Montoya, The Princess Bride.
[1]: https://www.irs.gov/instructions/i1040gi#en_US_2022_publink1...
In this case it looks like crypto is being taxed as a security, which makes sense. Just because it's ON THE INTERNET doesn't mean the government doesn't get its cut.
At a macro level it's not hard to understand unless you want to be a special snowflake and pretend this thing you're doing is NEW and DIFFERENT and somehow not income, in which case maybe the IRS doesn't get its cut.
Chances are you're just deluding yourself or are relying on the IRS not coming after you.
airdrops have evolved based on the tax regime, but you did claim this one so I would make that a yes
they simply penalize people that try to hoard dollars and not circulate, via tax and inflation
so it doesnt matter to the government that rich people borrow against appreciated assets, if they spend the borrowing then vendors sell stuff and also pay tax on that. if they pay interest the bank gets that, usually. if they donate the loan proceeds or the assets thats fine too. if they invest it thats fine as well.
obviously almost no individual politician perceives it this way, and a law may be passed through their house, but the aggregate outcome is that risk and money circulating is incentivized by not being taxed, accumulation of just cash to hoard is disincentivized by heavy taxes.
which is palatable because the masses of working poor only relate to taxes on transactions categorized as income instead of everything else that rich people actually use
If you received a digital asset you must check the box.
There are currently 1000s of free NFTs (almost all completely valueless) I could claim on random projects, if I don't manually claim them they are not a digital asset I have received. GP had to claim their reddit NFT to receive and then "own" it in their reddit vault (which is a non-custodial wallet too actually, stored on Arbitrum's blockchain).
"The oppressor no longer uses his own force directly upon his victim. No, our conscience has become too sensitive for that. There is still the tyrant and his victim, but between them is an intermediary which is The State—the Law itself. What could be better designed to silence our scruples and—more important—to overcome all resistance? Thus do all of us, by various claims and under one pretext or another, appeal to The State" - Frédéric Bastiat
If you buy a boat for $100k and sell it for $150k, you've always had to pay taxes on the difference.
Crypto works the same way.
I think you are conflating capital gains with securities, but there are in fact many asset classes besides securities.
[1]: https://www.irs.gov/individuals/international-taxpayers/freq...
and nobody is conflating the currency aspect of crypto, that misnomer is so last decade. if someone starts a conversation with that word, I’m not going to correct them until a reply like yours tries to read too deep into it
> income means all income from whatever source derived
Then it only proceeds to except certain things. So the better question, from the perspective of tax laws are: "are there any laws in this space that takes away the IRS's very clear authority to treat crypto earnings/losses like any other income"
income is income
capital gains is capital gains
dividends are dividends
the asset type that any of this was received in was never a factor, the nature of the transaction was the only factor
its nice that the crypto space is maturing on this matter now