On the first page of the Form 1040 for 2020, right under the taxpayers’ personal information but before any financial information is reported, the IRS has added the following question: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”. This heightened attention is not surprising. One of the top priorities of the Internal Revenue Service (IRS) in recent years has been to discover which taxpayers are selling cryptocurrency (i.e., Bitcoin or Ethereum) without reporting the transactions on their tax returns. The IRS is also looking for taxpayers earning cryptocurrency for services provided or performed without reporting the income. The new question seems simple, but perhaps not.

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• Questions On Cryptocurrency For Cash

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If you look to the instructions for the 2020 IRS Form 1040 regarding “Virtual Currency” as guidance regarding the new question, they state the following:

“Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, or a medium of exchange. Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency. The IRS uses the term ‘virtual currency’ to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency. Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes. If, in 2020, you engaged in any transaction involving virtual currency, check the “Yes” box next to the question on virtual currency on page 1 of Form 1040 or 1040-SR. A transaction involving virtual currency includes, but is not limited to:

• The receipt or transfer of virtual currency for free (without providing any consideration), including from an airdrop or hard fork;
• An exchange of virtual currency for goods or services;
• A sale of virtual currency;
• An exchange of virtual currency for other property, including for another virtual currency; and
• A disposition of a financial interest in virtual currency.

A transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control. If you disposed of any virtual currency that was held as a capital asset through a sale, exchange, or transfer, use Form 8949 to figure your capital gain or loss and report it on Schedule D (Form 1040).

If you received any virtual currency as compensation for services or disposed of any virtual currency that you held for sale to customers in a trade or business, you must report the income as you would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1, or inventory or services from Schedule C on Schedule 1).

For more information, go to IRS.gov/virtualcurrencyfaqs.”

It is clear that if a taxpayer sold “virtual currency” for a profit, then that taxpayer would have to pay income tax on the gain. For example, if the taxpayer sold Bitcoin during 2020 and had a gain, the taxpayer would need to check the box on page one as “Yes” and report the gain on that sale as income. However, what if that taxpayer merely purchased Bitcoin as an investment to hold as a long-term investment without selling any of it during 2020? On one hand, it would seem that the taxpayer should not have tax consequences to disclose or report because it purchased an investment and taxpayers normally do not need to report acquisitions of investments, like a publicly traded stock, in the year that it is acquired. On the other hand, the new question on the return seems to imply that you would have to check “Yes” in that case because you would have “acquired [a] financial interest in [a] virtual currency”.

Interestingly, an earlier draft of the IRS’s instructions for the 2020 Form 1040, as cited above, were different. Those instructions listed the examples of transactions involving virtual currency to include:

• A purchase or sale of virtual currency; and
• An acquisition or disposition of a financial interest in a virtual currency. (emphasis added)

When the final instructions ultimately were released, the words “purchase” and “acquisition” were removed but the phrase “otherwise acquire any financial interest” was kept in the question. In addition, the instructions still include the verbiage that the holding of virtual currency is not a reportable transaction for tax purposes. Thus, this has caused confusion in the tax community because it is unusual that merely acquiring an investment is receiving tax scrutiny. Adding to the confusion, an IRS spokesperson was quoted in a recent article in Tax Notes[1], as saying: “If the only activity someone has is a purchase/acquire and hold, then they don’t have to check the box”. Also, the FAQ page on the IRS’s website states: “No. If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer ‘yes’ to the Form 1040 question.”

In sum, should a taxpayer check the box on page one of their form 1040 “Yes” if they purchased Bitcoin or Ethereum (or some other cryptocurrency) as an investment to hold? The 1040 instructions and the IRS seem to imply that you would not need to check “Yes”, but the question itself implies a different answer. The answer may be unclear, but one thing that is clear is that, like asking clients if they have foreign bank accounts, tax practitioners now need to be asking their clients now about their cryptocurrency holdings.

[1] Kristen A. Parillo, “Final Crypto Instructions May Send Mixed Signals,” Tax Notes Today Federal, February 8, 2021, 2021 TNTF 25-5, https://www.taxnotes.com/tax-notes-today-federal/cryptocurrency/final-crypto-instructions-may-send-mixed-signals/2021/02/08/2r46r (retrieved February 6, 2021, subscription required)

Every industry has its stupid questions that professionals are asked about by those who know nothing about it. Cryptocurrency industry is not an exception. Since the industry is still young, people don’t have all the information or data concerning this sector.

As people want to learn more, questions are not avoided. Others fear or are afraid of asking questions thinking they are going to ask stupid things. We bring stupid questions people always ask.

Who created Bitcoin and how does he or she look?

People always ask these questions whenever they hear about Bitcoin. The person or company behind Bitcoin is called Satoshi Nakamoto. However, Satoshi has never come out publicly such that people can have a look at him. This keeps the public wanting to know who really controls Bitcoin and what that person looks like.

There are numerous theories about the identity of Satoshi Nakamoto. From the very inception of Bitcoin, the community speculated about many prominent people being the coin’s father, including Hal Finney, Nick Szabo, Dorian Nakamoto, Gavin Andersen and many others.

The most popular personality is Craig Wright who claimed to be Satoshi himself. He even provided some private keys allegedly belonging to the bitcoin wallet known to be Nakamoto’s. However, the community was not convinced by the argument, and Wright got himself widely famous as Faketoshi.

By the way, the “face” of Satoshi belongs to Dorian Nakamoto. It is his picture that is used each time when the father of Bitcoin is used. Despite Dorian having nothing in common with Bitcoin except for the name, the image of a funny-looking aged Japanese man became very popular to be associated with BTC creator.

What does Bitcoin look like? Does BTC have a physical form?

As people were using money for centuries, they got used to the notion that it must be tangible and have a physical form. That is why it is difficult to embrace the concept that something without any tangible form might actually be used as money.

But a fact is a fact, Bitcoin has no physical form. It is just a computer code that is used for performing operations. Perhaps, this is the main reason why the common folk have a lack of trust in cryptocurrency. Something that can not be touched does not exist. It is like a ghost, no one has seen it but everybody believes in it. So, is Bitcoin a ghost of money?

No. And the price of the flagship crypto proves it very well as it approaches the mark of $30,000. Despite it being difficult to understand for those who lack technical knowledge and skills, the BTC code is more than just figures. It has value because it is backed by something that has been working for centuries, namely, the laws of math.

Should I sell my house and invest in cryptocurrency?

Those people who invested in Bitcoin when it had just been launched made a lot of profits during the first cryptocurrency bubble in 2017. Initially, the value of Bitcoin was between $0.0008 to $0.08 per coin in around July 2010. Seven years later, BTC traded at around $20k, which is 250000x the initial price.

So now those without the experience in the cryptocurrency think that every day is a Sunday. They think Bitcoin will continue giving upward rallies forever, to the extent that they can go beyond selling their property to raise huge amounts of money to invest in cryptocurrency.

However, trading is far from being that easy. In reality, Bitcoin, just like any other cryptocurrency, is very volatile. So there is a high risk of losing money instead of gaining it. To get real profits, a trader or investor should do the homework properly and get enough knowledge and understanding of the market dynamics. This will help in defining the right time for buying and selling. And, no, there is no need to sell anything to start trading or investing.

Can I mine cryptocurrency the way they mine minerals like gold, diamond or copper (traditional mining)? Can anyone mine Bitcoin?

Theoretically, any person can mine crypto. You only need the right skills, resources, tools and equipment such as Application-Specific Integrated Circuit chips (ASIC). Most people, especially the inexperienced or illiterate, think that mining BTC is like mining gold from the ground. When they hear of mining they think of holding a hoe, shovels, pickaxes and hammers.

Some people don’t know that cryptocurrency can even be mined using a smartphone. Miners who have made a lot of profits in mining cryptocurrency have to have access to cheap power and also join mining pools since pools help them to lower expenses.

Will cryptocurrency make me rich in five years?

With the two crypto-bubbles that have happened where we saw Bitcoin hitting and exceeding the $24k cap. People think that if they invest in Bitcoin they will be millionaires in future. In fact, the early bird investors didn’t become millionaires. They became billionaires.

On the other hand, BTC price volatility saw many people with a lack of knowledge lose their funds. All in all, Bitcoin indeed can make a person reach, but only if a person possesses proper expertise in the field. Profits don’t come for nothing.

Is it too late to purchase crypto now?

The early bird investors indeed became billionaires as cryptocurrency prices have grown enormously. For this reason, many people believe it is too late to buy coins as they will not bring so much profit anymore.

However, 2020 has proven this concept frog. In March, during the event known as Black Thursday, most major cryptocurrencies lost a great deal of their value. For instinct, Bitcoin cost around $3,500. By the end of the year, the coin’s price approaches $30,000. Anyone can do one’s math to figure out the profit it brought to those who bought the crypto in March.

I have some money in the bank, should I withdraw it and use it to buy crypto?

Many beginners to the industry tend to think that bitcoin investment is something like a bank deposit, where people get regular profits. Again, this assumption is wrong due to the high volatility of digital assets. For a person can get rich or lose everything in a matter of hours (remember the Black Thursday event).

So, those who want to minimize risks and get a small but stable income from their investment should keep their money in their bank accounts. Cryptocurrency is not a deposit, but an investment opportunity with all associated risks.

How many bitcoin does someone need to retire?

Cryptocurrency Question 1040

Getting a passive income to retire and live for one’s pleasure is the dream of many. However, no one would tell for sure how many Bitcoins a person needs to make this dream come true. Again, it is all because of price volatility. Despite analysts predicting a bright future for the coin in terms of growth, no one knows exactly how much it will cost in the long-term perspective.

If I hold crypto for a decade and its price becomes like $2 million per coin, who will then buy my cryptocurrency for that amount of money?

People think that if the price of a cryptocurrency such as BTC is high no one will afford to buy it if a holder decides to sell it at once. This might be true, even though one might be surprised by the number of people in the world who think $2 million is not a big amount.

But even if no one buys the entire amount at once, a holder can keep on selling his or her BTC in small portions. One can sell it to different buyers or traders until one empties the wallet. It might take longer, but it proves that there is no danger for a hodler to be unable to sell one's coins. The danger exists only in case there will be no single cryptocurrency exchange in the world.

Can anyone create one’s own cryptocurrency?

Questions On Cryptocurrency For Kids

Obviously, yes. The abundance of cryptocurrencies in the market proves that very well. However, the development of the code for a coin requires certain knowledge and skills. So, probably, someone from the humanitarian field of knowledge might find it difficult to develop a mathematical code. But still, the person can arrange a team and engage professionals with the proper expertise.

Considering the overall digitization caused by the COVID-19, the field of developing cryptocurrencies and tokens offers great opportunities in the long run. For instance, CoinIdol, a world blockchain news outlet, previously reported that many football teams have launched their tokens to engage their fans and supporters in conditions of the lockdown.

These are far from being an exhaustive list of questions related to cryptocurrency as this industry is still nascent. But the abundance of questions is great for any industry. It means that people are actually interested in it.

Questions On Cryptocurrency For Cash

What was the most stupid question you were asked about cryptocurrency? Let us know in the comments below!