Cryptocurrency airdrops are (usually) free distributions of coins or tokens into multiple wallet addresses to promote and drive adoption of a new virtual currency.
Recently, the IRS ruled that airdrops, along with promos and staking rewards, only become taxable once the taxpayer "acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency." Airdropped currency not yet usable or accessible would therefore not be taxable until the taxpayer is able to exercise control over it. More info
First, convert the value of your airdrops, promos, and rewards to US dollars (USD) if the issuer or exchange hasn't already done this for you.
You can use an online cryptocurrency converter, such as CoinMarketCap, to determine the USD value based on either the historical close price or the average price (doesn't matter which one you choose, as long as you stay consistent throughout your calculations.) Be sure to keep notes of your calculations with your tax records in case it's ever questioned.
Example: Let's say you received .00017762 BTC as a promo on December 9, 2020 and you were able to immediately exercise control over it (sell, trade, exchange, etc.).
- On that day, CoinMarketCap reports that the BTC close price was $7,400.90.
- Multiply the quantity received by the close price (.00017762 × $7,400.90 = $1.31 rounded).
- Repeat this calculation for all airdrops, promos, and staking rewards received in 2020, based on the close price of the day you were able to exercise control over them.
- Add them together for one total sum, and move on to the next section.
Once you have the USD values, here's how to enter them into TurboTax:
- With your return open, go to Federal (or Federal Taxes) > Wages & Income (or Personal if using Self-Employed or Home & Business).
- Open the Less Common Income section and start or revisit the last entry, Miscellaneous Income, 1099-A, 1099-C.
- On the next screen, start/revisit the very last entry, Other Reportable Income, and answer Yes on the following screen.
- On the next screen, enter a description (for example, "crypto airdrop") and then enter the total USD amount.
- Select Continue when finished.