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The IRS has issued a reminder urging taxpayers to answer the digital asset question and report all digital asset income when filing their 2023 federal income tax returns. Taxpayers must respond to the digital asset question on Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, and 1120S, regardless of whether they engaged in digital asset transactions.

1. What constitutes a digital asset:
   1. Convertible virtual currency and cryptocurrency
   2. Stablecoins
   3. Non-fungible tokens (NFTs)

1. Taxpayers must report income from digital asset transactions, including sales, exchanges, transfers, and receipts for services, on their tax returns.
2. The IRS clarifies that certain activities do not constitute transactions, including:
   1. Holding digital assets in a wallet or account
   2. Transferring digital assets between wallets or accounts owned by the same taxpayer
   3. Purchasing digital assets using real currency
3. Reporting requirements apply to all taxpayers who received digital assets, regardless of transaction volume.
4. Digital asset income received for services should be reported as wages or nonemployee compensation on Schedule C, Profit or Loss From Business.

Taxpayers are reminded to answer the digital asset question on their tax returns accurately and report all digital asset income for the 2023 tax year.