Late last year, the IRS issued notice that starting Jan. 1, 2024, businesses are required to electronically file (e-file) Form 8300, Report of Cash Payments Over $10,000, instead of filing a paper return.
Under the regulation, businesses that receive more than $10,000 in cash must report transactions to the U.S. government. Although many cash transactions are legitimate, information reported on Forms 8300 can help combat those who evade taxes, profit from the drug trade, engage in terrorist financing or conduct other criminal activities. The government can often trace money from these illegal activities through payments reported on Forms 8300 that are timely filed, complete and accurate.
How the new cryptocurrency cash reporting requirement may affect your freelance business
As part of the guidance noted above, the IRS had originally stated that digital assets valued at $10,000 or more are treated as “cash” received for any person engaging in a trade or business, it was inferred that cryptocurrency transactions would be included as part of the $10,000 transactions.
As a reminder, the existing law states that, “Any person engaging in a trade or business that receives more than $10,000 in cash must file IRS Form 8300 (”Report of Cash Payments Over $10,000 Received in a Trade or Business”).” With this form you are required to report: (1) the name, address, and TIN of the person from whom “cash” was received; (2) the amount of “cash” received; and (3) the date and nature of the transaction.
The newly issued clarification does also attempt to clarify some ambiguity around cryptocurrency and whether this is included in the threshold amount. It states that, “at this time, digital assets are not required to be included when determining whether cash received in a single transaction (or two or more related transactions) meets the reporting threshold. The U.S. Department of the Treasury and IRS intend to prescribe regulations to provide additional information and procedures for reporting the receipt of digital assets.”
The definition of a digital asset according to the IRS is: “A digital representation of value that is recorded on a cryptographically secured, distributed ledger or any similar technology.” Under this definition,digital assets include:
- Convertible virtual currency and cryptocurrency.
- Non-fungible tokens (NFTs).
Be prepared to report any crypto you trade or accept for your freelance business payments.
In addition, be aware that all individuals and businesses must answer a question on their tax return about involvement with cryptocurrency. This questions is now applicable to most tax return types which isnew for the 2023 tax year: 1041, U.S. Income Tax Return for Estates and Trusts; 1065, U.S. Return of Partnership Income; 1120, U.S. Corporation Income Tax Return; and 1120S, U.S. Income Tax Return for an S Corporation. See below for additional details.
Freelancers dealing with crypto in their businesses must place a priority on regulating virtual currencies from a tax perspective. As long as you keep your crypto activity well-documented and work with reputable dealers and platforms, you should have no issues keeping in compliance with these new tax laws.
Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, 1120 and 1120S must check one box answering either “Yes” or “No” to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.
The question appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return, and was revised this year to update the question asked. It was also added to Forms 1041, U.S. Income Tax Return for Estates and Trusts; 1065, U.S. Return of Partnership Income; 1120, U.S. Corporation Income Tax Return; and 1120S, U.S. Income Tax Return for an S Corporations.
It asks: “At any time during 2023, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
If you simply owned digital assets during 2023 can check the “No” box as long as you did not engage in any transactions involving digital assets during the year or if your activities were limited to one or more of the following:
- Holding digital assets in a wallet or account;
- Transferring digital assets from one wallet or account they own or control to another wallet or account they own or control; or
- Purchasing digital assets using U.S. or other real currency, including through electronic platforms.
For a set of frequently asked questions (FAQs) and other details, visit the Digital Assets page on IRS.gov.
Your freelance business must keep a copy of every Form 8300 it files, as well as any supporting documentation and the required statement it sends to customers, for five years from the date filed.
Filing electronically will provide a confirmation that the form was filed; however, e-file confirmation emails alone don’t meet the record keeping requirement. When e-filing, filers must also save a copy of the form prior to finalizing the form submission. They should associate the confirmation number with the saved copy. Prior to finalizing the form for submission, businesses should save a copy of the form electronically or print a copy of the form.
For additional details please refer to our previous post on reporting cryptocurrency for your freelance business.