How do I report virtual currencies, such as Bitcoin, Litecoin, or Ethereum, on a return?
There are several possible entry points depending on how the currency was received, sold, purchased, etc. Per the IRS, "The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability." Some data entry possibilities in Drake Tax include the 8949 and/or D2 screens.
According to the IRS FAQ on Virtual Currency Transactions, answer 40. "You must report most sales and other capital transactions and calculate capital gain or loss in accordance with IRS forms and instructions, including on Form 8949, Sales and Other Dispositions of Capital Assets, and then summarize capital gains and deductible capital losses on Form 1040, Schedule D, Capital Gains and Losses."
Starting in 2019, the IRS has added a question to Form 1040, Schedule 1 regarding virtual currencies. Per the 1040 Instructions, "If, in 2019, you engaged in any transaction involving virtual currency, check
the “Yes” box next to the question on
virtual currency at the top of Schedule 1." In Drake19, this question can be answered on screens 1 or B3. Note that you can only answer the question on screen 1 if both the foreign accounts and virtual currency questions should be "no." Otherwise, you must make the necessary entries on the B3 screen instead.
Screen 1 checkbox if the answer to both questions is NO:
Screen B3 must be used if the answer to either or both questions is YES. Note the three required entries, highlighted in blue:
Note 243 is generated in view mode if there is no answer given, however, this will not prevent e-file.
Please see the following IRS resources for details, or contact the IRS directly for more guidance.