(Art credit: Pedro Gomes)
Given that the new infrastructure bill mainly allocates funding for public works projects, you may not be aware that the bill also puts in place new reporting requirements for individuals trading and using cryptocurrency, which begin January 1, 2023.
While cryptocurrency (crypto) investors were expected to meet the same reporting standards when it came to paying tax and reporting profits and losses to the Internal Revenue Service, the passage of the Infrastructure Investments and Jobs Act (IIJA) shows that the IRS is serious about enforcing, strengthening, and standardizing these requirements.
You can find the reporting requirements stated in section 80603 of the Infrastructure Investments and Jobs Act (IIJA).
Here is a synopsis:
Summary of the New Reporting Requirements for Cryptocurrency Exchanges
1. All cryptocurrency exchanges are now considered “brokers,” similar to traditional investment brokers.
2. The term “digital asset” is defined by the law as “any digital representation of value which is recorded on a cryptographically secure distributed ledger or any similar technology as specified by the Secretary” (H.R. 3684, p. 2421).
3. Digital assets are considered the same as securities, similar to stocks, bonds, and certain types of commodities in the eyes of the IRS. Therefore, the tax treatment of digital assets is essentially the same as before: you must pay taxes on capital gains.
Keep in mind that securities are also subject to the Securities and Exchange Commission (SEC) and this legislation does not address the SEC.
4. Reporting requirements are now more stringent for cryptocurrency exchanges, which must now report information to both the IRS and to their customers. Currently, there are no reporting requirements for cryptocurrency exchanges, although some exchanges may send you tax forms such as Form 1099-MISC, which only covers the payouts received, not capital gains related to your crypto activity.
The new law states that the following information is now required to be reported to the IRS and to customers: (1) name, address, and phone number of each customer; (2) the gross proceeds from any sale of digital assets; and (3) capital gains or losses and whether such capital gains or losses were short-term (held for one year or less) or long-term (held for more than one year).
The legislation does not state what IRS forms cryptocurrency exchanges must send to their customers, but Form 1099-B (“Proceeds from Broker”), would seem reasonable.
5. Penalties for failure to report cryptocurrency activity will cost you. The law lays out that exchanges which fail to report the information above will be subject to a $250 penalty per customer, up to a maximum $3 million penalty.
How the new cryptocurrency tax law may affect your freelance business
Another important development in the IIJA is that digital assets valued at $10,000 or more are now treated as “cash” received for any person engaging in a trade or business
The law states that, “Any person engaging in a trade or business that receives more than $10,000 in cash must file IRS Form 8300 (''Report of Cash Payments Over $10,000 Received in a Trade or Business”).” With this form you are required to report: (1) the name, address, and TIN of the person from whom “cash” was received; (2) the amount of “cash” received; and (3) the date and nature of the transaction.
This new reporting requirement takes effect January 1, 2023. This means that exchanges are not required to send you Form 1099-B until 2024 (for 2023 taxes).
Trading crypto or accepting it for your freelance business payments? It’s time to get prepared to report your activity! The fact that this new cryptocurrency legislation was tucked conveniently inside of the IIJA indicates that the Biden administration is putting a priority on regulating virtual currencies from a tax perspective. As long as you keep your crypto activity well-documented and work with reputable dealers and platforms, you should have no issues keeping in compliance with these new tax laws.
Jonathan Medows is a New York City-based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He provides tax, accounting and business articles for freelancers on his website, http://www.cpaforfreelancers.com, which also features a free newsletter, blog and a comprehensive freelance tax guide.