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Virtual currency continues to be a priority for the IRS. In fact, the draft release of the 2020 form 1040 includes the question: "At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency." While this question was included in the 2019 forms, it was part of a separate schedule. It's now been moved front and center on the front of the 1040 immediately after your name and address!
It's important to keep in mind that reporting requirements are triggered by events including selling crypto for cash (fairly obvious), paying for goods or services, buying one crypto with another (e.g. converting bitcoin to ethereum), receiving mined crypto, being paid in crypto (such as by a customer or via wages from an employer), and receiving crypto rewards such as staking rewards and interest earned. Transactions must be reported at fair market value in US dollars.
With regards to reporting, the onus is on the individual holder of cryptocurrency and the IRS is starting their efforts there. It's expected that beginning next year the IRS will begin issuing guidance requiring the brokers and exchanges to report the transaction information to the IRS. This would put crypto assets more in line with traditional financial assets including stocks, bonds, mutual funds, and ETFs.
What to do until then? Having a single view of all of your transactions is handy. Consider using a cryptocurrency portfolio manager. I've been playing around with CoinTracker but there are other including ZenLedger and Koinly. Keeping accurate records of your transactions is a great defense against the IRS.
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Disclaimer
Please see our Disclaimer. The information contained within this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant.