Is the IRS Requiring You to Report Your Cryptocurrency Transactions?

Some will have to file tax returns this year because of the surge in popularity of cryptocurrencies after record-setting gains in value (which have since dwindled) (IRS).

Virtual currency is defined by the IRS as “a digital representation of value, other than a representation of the United States dollar or a foreign currency (“real currency”),” and these rules have been in effect since 2014.

In addition to having a monetary value, these digital or cryptographic currencies may be convertible into real-world currency for the agency.

When reporting a person’s total assets to the IRS, cryptocurrencies are considered property. Because cryptography is used to “secure transactions that are recorded on a distributed ledger, such as a blockchain,” it is distinct from other digital currencies.

If you’re talking about cryptocurrency, a “hard fork” is when a “cryptocurrency is permanently diverted from the legacy distributed ledger” due to “protocol change”. There will be two ledgers for the same transaction because the ledger is what keeps track of all transactions, as seen above.

The term “hard fork” refers to the fact that you won’t be taxed unless you receive “any new cryptocurrency, whether through an airdrop (a distribution of cryptocurrency to multiple taxpayers’ distributed ledger addresses) or some other kind of transfer.

How much money can be made from a hard fork?

An airdrop may follow a hard fork, which means that one will receive “ordinary income equal to the fair market value of the new cryptocurrency when it is received,” It is possible to use the market value distributed to either “transfer, sell, exchange, or otherwise dispose of the cryptocurrency” if the transaction is received and recorded in the ledger and if you have “dominion and control over the cryptocurrency.”

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