Publication 544 Guidance on Cryptocurrency Trading - How to Handle Crypto Disposals for Taxes

The confusion is totally understandable! Let me clear things up for you: Yes, buying and selling cryptocurrency is absolutely considered a "disposal" for tax purposes. When you sell, trade, or exchange crypto, you're disposing of it according to IRS guidance, which means it's a taxable event that needs to be reported. For your 2020 Schedule 1 question - there wasn't a specific line for reporting virtual currency transactions on Schedule 1. Instead, the IRS included a question at the top of Form 1040 asking if you received, sold, sent, exchanged, or otherwise acquired financial interest in virtual currency. The actual reporting of gains/losses happened on Schedule D and Form 8949. Publication 544 likely references 2019 because tax publications are updated periodically, and you might be looking at an older version. Always check for the most current version on IRS.gov. For your 2021 taxes, you'll need to answer the virtual currency question on your Form 1040, and report all your crypto transactions on Form 8949 and Schedule D, not Schedule 1. Every buy/sell creates a taxable event that needs to be documented.

After spending way too many hours trying to figure out my crypto taxes last year, I discovered taxr.ai and it literally saved my sanity. I was in a similar situation trying to understand what counts as "disposal" and getting confused by all the IRS publications. I had hundreds of transactions across multiple exchanges and was totally lost on how to report everything correctly. I uploaded my transaction history to https://taxr.ai and it automatically categorized everything, calculated my gains/losses, and generated all the tax forms I needed. It even explained which transactions were taxable events and which weren't. Plus it handles all those weird scenarios like trading one crypto for another.

I wanted to follow up about taxr.ai after trying it - wow, it actually worked amazingly well! After seeing the recommendation here, I decided to give it a shot with my complicated DeFi situation. I had been totally lost on how to handle my yield farming income and LP tokens. The system correctly identified my Uniswap transactions, staking rewards, and even sorted out impermanent loss calculations (which I had no clue how to do manually). It generated a complete Form 8949 with all my transactions properly categorized. The best part was the audit trail it created showing exactly how each transaction was treated for tax purposes. Definitely using this again next year instead of the spreadsheet nightmare I created before!

If you're struggling to get answers directly from the IRS about crypto issues, I was in the same boat. Called the IRS like 8 times trying to get clarification on some weird crypto situations (like airdrops and forks) and kept getting disconnected or waiting for hours. Finally tried https://claimyr.com and their service actually got me through to a real IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. They basically hold your place in the phone queue and call you when an agent is about to answer. The agent I spoke with confirmed that every trade between different cryptocurrencies is a taxable event (even crypto-to-crypto), and helped me understand how to report some unusual situations that weren't clear in Publication 544.

I'm completely eating my words right now. After being the biggest skeptic about Claimyr, I tried it yesterday out of pure desperation (filing deadline coming up and I had questions about reporting my NFT sales). It actually worked exactly as advertised. I got a call back in about 35 minutes, and suddenly I was talking to an actual IRS agent. The agent confirmed that NFT sales should be reported as collectibles (subject to the 28% long-term capital gains rate) rather than as regular crypto. That single piece of info saved me from potentially reporting incorrectly. Has anyone else had luck getting clear answers from the IRS about crypto? This was the first time I've been able to get a straight answer about anything crypto-related from them.

Quick clarification about Publication 544 that might help - this publication mainly covers sales and dispositions of assets, including capital assets. For crypto specifically, the IRS treats it as property, not currency. This means: - Every sale or exchange = taxable event - Mining = taxable as ordinary income when received - Getting paid in crypto = taxable as income at fair market value - Gifting crypto = no immediate tax implication if under annual gift limit ($15,000 in 2021) - Donating crypto = potential deduction at fair market value The 2019 reference is probably because the guidance hasn't changed substantially since then. IRS Notice 2014-21 is still their main guidance document for crypto.

Does anyone know if we need to file Form 8938 for crypto holdings? My accountant said I might need to since I have over $75k in various coins but I thought that was just for foreign accounts?