Last year was ugly for cryptocurrencies.

Even before the demise of the FTX and other cryptocurrency exchanges that have since declared bankruptcy, crypto was stressed. For many investors, the FTX scandal capped a disastrous 2022 that prompted them to cut their losses in cryptocurrencies like Bitcoin and Ethereum.

As tax season rolls in, you may wonder if you can deduct those losses against any capital gains you notched during the year. Or if you were lucky enough to earn money from investing in crypto or crypto-related assets, you may be asking if you have to report it to the Internal Revenue Service?

Here's what to know as you prepare your taxes:

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Do you need to report crypto on taxes?

Yes.

The IRS requires taxpayers to report "all digital asset-related income" on their 2022 federal income tax return. Digital assets, according to the IRS definition, include not only cryptocurrency but also non-fungible tokens (NFTs) and stablecoins.

On your 1040 tax form, the one used to report individual income, you'll have to answer "yes" or "no" to the following question:

"At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?"

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If you held on to a digital asset in 2022 but didn't purchase more of it or sell any of it or you transferred it to another account, you generally don't have to answer yes, according to the IRS' instructions.

However, if you sold any digital assets whether at a loss or for a gain, you must answer yes to the question and use form 8949 to record your capital gain or loss. You must also check yes and fill out the form if you acquired any new digital assets during the year. That may include digital assets you may have received as a form of compensation in 2022.

Form 8949

Form 8949 is what you'll use to record any transactions you made for assets that could incur a capital gain or loss. That includes digital assets, stocks, bonds and more. So if for instance, you bought Bitcoin at any point during 2022, you'll need to record it on the form. Similarly, if you sold any Bitcoin during the year you'll record it on the form.