Cryptocurrency Disclosure on Form 1040

“Telling my business to kids I don’t even know,

You’re like a daytime talk show…and that’s low.”

— Take it Personal, Guru

On Form 1040, you can only enter common types of income. However, on Schedule 1, you can report types of income that aren’t listed on Form 1040, such as capital gains, unemployment payments, and gambling winnings. Starting on the 2019 tax returns, there will be a question regarding virtual currencies. The new question will be “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?” Your two options to the question will be simply “yes” or “no.” As we all know, nothing about taxes are simple. In this article, I will discuss how best to deal with the new question.

The most interesting thing about the question is the wording. Did you notice that the question does not ask if you own any cryptocurrency? Sounds like a trap to me! If you currently own cryptocurrencies but didn’t have any of the mentioned activities in 2019 then simply answer “no.” Based on the wording of the question, I believe you can survive an audit replying with “no.” Now, let’s say that you simply exchanged your cryptocurrency to another wallet then you must answer “yes.” You must answer “yes” even if the action is not a taxable event. You must answer “yes” if you were given cryptocurrencies as a gift or donation in 2019. If you used cryptocurrency to purchase an item, then you must select “yes.” The only way to get away with replying with “no” is that you did absolutely nothing with the cryptocurrencies that you received, sold or exchanged prior to 2019 and didn’t you receive any new ones in 2019.

You don’t need to complete Schedule 1 if your response to the cryptocurrency question is “no.” However, view the question as a learning lesson. There may be a time that you will make a cryptocurrency transaction. For example, you held on to the cryptocurrency for years but decided to finally sell your holdings. The lesson should be that you must be prepared to report it on your tax returns. Start now to have information like purchase date and cost basis readily available. Develop a good recordkeeping system. Don’t just rely on an exchange like Coinbase to keep your records. In addition, have a conversation with your tax accountant before making a move with your cryptocurrency.

Don’t sleep on the IRS! It is possible that this new question is an effort to hold taxpayers accountable for any failure to report their crypto-related income, even when accidental, rather than simply as a reminder to report their cryptocurrency transactions. Don’t just answer “no” because you feel that the IRS will never be able to locate your cryptocurrency assets. Intentionally failing to disclose accurate crypto-related information can be enforced like offshore account reporting. This could mean that the IRS could leave the door open to pursue criminal charges.

Recent IRS cryptocurrency compliance actions should be considered as warning shots. The IRS are getting closer to developing a system that will be able to keep better track of taxpayers that own cryptocurrency. I had people tell me that they are not worried about the IRS finding out about their cryptocurrencies. This is the same attitude that many clients that I represent with IRS problems with no cryptocurrency tax issues. Most of them thought, “the IRS will never get me!” Now, they have six figured tax debt. Please take these warning shots seriously.

Need help with your crypto taxes? Well, contact Jamaal "Crypto J" at!




IG: @36chamberscryptotaxes

Twitter: 36cryptotaxes

Share this article...

Want tax & accounting tips and insights?

Sign up for our newsletter.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .
I consent to receive SMS messages