Drake Tax - 1040 - Virtual Currencies and Digital Assets - EF Message 2260

Article #: 15479

Last Updated: October 18, 2024

 


Tags: Drake Tax

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This article discusses digital assets* such as:

  • Virtual Currencies (Bitcoin, Ether, Litecoin, Ethereum, Dogecoin, etc.),

  • Stablecoins (Tether, USD Coin (USDC), etc.), and

  • Non-fungible tokens (NFTs).

Data entry points vary depending on how the currency or asset was received, sold, purchased, etc. and what year of Drake is being used (see below for year-specific info). Also see the following IRS resources for details, or contact the IRS directly for more guidance.

Drake Tax 2022 and future

Virtual currencies are now included in what the IRS is generally calling Digital Assets. *The IRS defines digital assets as follows:

"Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins. If a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes."

Data entry points remain the same as in prior years:

  • Screen 1 check box to indicate whether or not the taxpayer received (as a reward, award or payment for property or services) or sold, exchanged, gifted or otherwise disposed of a digital asset (or a financial interest in a digital asset).

    • This is required to be answered on all 1040 returns and the answer appears below the address section on Form 1040. EF message 2260 generates preventing e-file until a selection is made.

  • Screens 8949 and/or D2 for sales of digital assets.

  • Screen 3, line 1 to report digital assets received as wages.

  • Screen C to report digital assets received as compensation related to your business.