Hi to my ones of readers! I took a week off for Christmas, but I'm back for New Year's Day and ready to talk about some 1040 Page 1 excitement.
A few years ago, certain presidential candidates campaigned on the issue of tax simplification. "We will fit your tax return on a postcard!" they boasted! Well, since politicians always keep their campaign promises, when Trump took office he set out to make this happen.
If your interested, take a look at the 2017 Form 1040 and the 2018 Form 1040. The 2017 Form is a full 2 pages of information. Rather than actually simplifying the reporting in any way, the IRS simply moved all of the required information off of the 1040 and on to supplemental schedules 1-4. So now, you have your postcard plus 4 additional pages to file. But hey, it fit on a postcard, right! Campaign promise fulfilled.
But now, no one is running for President and promising to simplify the 1040, so the IRS needs to fill up all that empty space on the 1040. In fairness, everyone is still sending in a full 8.5 x 11 sheet of paper, so they might as well put that space to work.
First thing, the new 2022 1040 forms made some changes. Remember in Part 3 when I went on forever about what goes on Line 1? Well, the IRS also thought that was interesting stuff and decided to break it all out for us.
Everything I said in Part 3 is still true, you just have to find which Line 1 it goes on now.
The second thing I want to point out is this question about crypto currency.
I know you bought your NFTs on the dark web and they are completely untraceable, but you still need to report them to the IRS. If you sold or gave away or abandoned digital assets, you need to answer Yes to this question and then report any gain/loss on the transaction on Schedule D.
You also should answer Yes if you received any digital asset in exchange for services or as an award. So if your fancy tech company is paying you in dogecoin, that is still taxable income to you. It goes on Line 1a.
A fun thing about digital assets is that nobody understands them. This includes the IRS. The instructions for the 2022 Form 1040 say this: "If a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes."
Apparently the definition of digital asset is similar to the definition of pornography: you know it when you see it.
Much like everything else in the income tax world, people like to overcomplicate things. The reality is that digital assets are treated just like any other asset: if you get one, its income; if you sell one, you will have gain or loss. They are just less tangible and harder to trace.
If you are dealing in crypto or other digital assets, be sure and let your tax preparer know so they can answer the question Yes.
I don't want to make these posts too long, so I'll be back next week to talk about Schedule B! (yes, Schedule B comes before Schedule A. I didn't design it).
Happy New Year!
Be sure and send me a comment or message if you have questions or topics you want me to go into after we finish 1040s.