In 2022, you might owe crypto taxes on these unexpected items.
If you were one of the millions of people who purchased cryptocurrency for the first time in 2021, you might be surprised when it comes time to file your taxes.
The Internal Revenue Service (IRS) is fully aware of cryptocurrency, which began as a decentralized underground economy. Now that the roughly $2 trillion sectors have gone mainstream enough to fill coveted Super Bowl commercial space, the IRS is well aware.
For tax reasons, the IRS regards bitcoin as intangible property, which means that any profits you generate from selling it are subject to capital gains taxes. This is true whether you bought bitcoin or altcoins on a crypto exchange like Coinbase or just bought and utilized cryptocurrencies through an app like Venmo or PayPal.
This year, it’s at the top of tax experts’ minds: TurboTax now asks if you traded cryptocurrency last year as you start your 2021 tax return. (This is made more accessible if you connect your wallet to a cryptocurrency portfolio tracking tool that can compute your capital gains and losses in seconds.) and if you file your taxes on paper with the help of a CPA, you should at the very least be prepared to tell them about your crypto revenues in 2021.
But what does the IRS define “profits” in the context of cryptocurrency, and what constitutes a taxable event? Let’s find out how the IRS categorizes the circumstances below.
In 2022, be on the lookout for unexpected crypto tax bills.
Have you been given an NFT, purchased everyday items with cryptocurrency, or earned enough cryptocurrency to put you in a new tax bracket.
Airdrops and bitcoin gifts
Last year, cryptocurrency was a popular gift. According to a BlockFi poll, one out of every ten persons offered cryptocurrency as a holiday present.
Everyone today has heard of non-fungible tokens (NFTs), but few people understand how they are taxed.
Although the IRS has yet to issue formal guidance on NFTs, it’s worth mentioning that during a fraud investigation and tax crackdown in the United Kingdom, British tax authorities recently made the country’s first seizure of NFTs. Of course, Americans can’t look to other countries for specific tax advice, but it’s becoming apparent by the day that customers shouldn’t try to avoid paying taxes on NFT purchases and trades.
Tokens for gaming rewards
Play-to-earn video games that reward players with decentralized finance (DeFi) tokens that can hold real-world value and be exchanged for either crypto or fiat (government) currencies are becoming increasingly prevalent worldwide.
Passing through a higher tax bracket
Many people made money on cryptocurrency last year. As a result, some people have exceeded the $200,000 adjusted gross income (AGI) threshold for the first time — and may face more significant taxes than usual.
Buying beverage with crypto wallet
Buying coffee and other ordinary items with cryptocurrency
Purchasing goods and services using cryptocurrency, even minor expenditures like buying a cup of coffee.
Cryptocurrency gift cards
Popular cryptocurrency debit and credit cards, such as the Gemini Mastercard and the BlockFi bitcoin rewards card, have made it simple to purchase products at stores with cryptocurrency. Users can also get crypto benefits, such as 3% back in bitcoin when they spend.