Crypto Taxes USA: The Absolute Guide for 2023 [IRS Rules]

As the use of cryptocurrency continues to grow, it is essential to understand the tax implications of buying, selling, and trading digital assets. In the United States, the IRS (Internal Revenue Service) has clear guidance on reporting cryptocurrency transactions for tax purposes, and failure to comply can result in penalties and fines. 

This guide aims to provide an overview of crypto taxes in the US, including what forms to use, how to calculate gains and losses, and tips for reporting accurately and efficiently.

👆 Crypto taxes in the USA at a glance

• Cryptocurrency is treated as property in the US, subject to capital gains and income tax.
• Every time you sell or trade cryptocurrency, you must report the transaction to the IRS and pay taxes on capital gains or losses.
• Mining and staking rewards are also taxable as income.
• NFTs are taxable and follow the same capital gains tax rules as other cryptocurrencies.
• Failure to report crypto taxes can result in fines and criminal charges.
• To accurately calculate your crypto taxes, using crypto tax software or consulting a tax professional familiar with cryptocurrency is recommended.
• Tax deadlines for cryptocurrency are the same as those for traditional assets.
• Losses from crypto transactions can be used to offset gains and reduce your overall tax liability. This is known as tax-loss harvesting.
• Keep accurate records of all your crypto transactions, including buying, selling, trading, mining, and receiving rewards, to ensure you are prepared to report your taxes accurately to the IRS.

Do you pay taxes on crypto like Bitcoin in the United States?

In the US, you do indeed pay taxes on cryptocurrencies like Bitcoin. According to Federal Revenue Service (IRS) regulations, all cryptocurrency transactions must be reported on taxes. 

Several forms could be required depending on your specific circumstance. Therefore it is critical to know which ones to use. 

In general, Forms 1099 must be used to report any cryptocurrency-related income, and Form 8949 must be used to report capital gains transactions. 

Also, cryptocurrency owners must report transactions on Forms 1099-B. Form 1099-MISC is used if you receive payment in cryptocurrency for services. 

NFTs also have tax obligations, and the IRS must receive a Form 1099-NEC. It is essential to remember that all the documents mentioned above must be sent to the IRS, regardless of how much tax you owe. 

Be sure your taxes are reported accurately because doing otherwise could result in penalties and fines.

How is crypto taxed in the USA?

The IRS mandates that all cryptocurrency transactions be disclosed on tax forms and that any gains from such transactions be subject to taxation. 

The particular tax consequences for your cryptocurrency activities will vary depending on several variables, including the type of transaction, the length of the holding period, and the cryptocurrency’s cost basis. 

Everything you need to know to plan and file your cryptocurrency taxes in the US will be covered in this article.

What are crypto capital gains and capital losses?

Crypto capital gains and capital losses refer to the profits or losses realized from the sale or exchange of cryptocurrency, such as Bitcoin, Ethereum, or Litecoin. 

In the US, the IRS considers cryptocurrency as property for tax purposes, which means that capital gains and losses rules apply to it. 

If a taxpayer sells their crypto for more than their cost basis (the original purchase price), they realize a capital gain, and if they sell it for less than the cost basis, they recognize a capital loss. 

These gains or losses must be reported on the taxpayer’s tax return and are subject to taxation based on the taxpayer’s holding period and tax bracket.

Short-term vs. long-term capital gain or loss

It is important to understand how the IRS categorizes cryptocurrency-related transactions. 

Income from cryptocurrency trading is generally considered to be either short-term or long-term capital gains. 

Short-term capital gains are taxed at your marginal tax rate, while long-term gains are taxed at lower rates. 

Keep thorough records of all your cryptocurrency-related transactions, and disclose them appropriately to the IRS when filing your taxes. 

You should also keep track of any costs associated with your cryptocurrency trading operations since they can be written off from your overall taxable income.

Crypto tax rates for tax year 2022 / 2023

Short-term capital gains tax rates

Short-term capital gains (assets held for less than one year) are taxed at the taxpayer’s ordinary income tax rate, which ranges from 10% to 37%.

2022 Short-term Federal Income Tax rate brackets:

2023 Short-term Federal Income Tax rate brackets:

Long-term capital gains tax rates

Long-term capital gains (assets held for more than one year) are taxed at a lower rate, ranging from 0% to 20% based on the taxpayer’s income.

2022 Long-term Federal Income Tax rate brackets:

2023 Long-term Federal Income Tax rate brackets:

How do crypto tax brackets work?

The tax rates on cryptocurrency gains in the US are based on the taxpayer’s income tax bracket. The tax brackets are an assortment of income levels to which a specific tax rate is applied. Your tax rate will rise as your income level increases.

The purpose of income tax brackets is to create a progressive tax system where higher earners pay a greater proportion of their income in taxes.

The United States has seven federal income tax brackets for the tax year 2022: 

• Under $10,275:   10%
• $10,275 to $41,775:   12%
• $41,775 to $89,075:   22%
• $89,075 to $170,050:   24%
• $170,050 to $215,950: 32%
• $215,950 to $539,900: 35%
• Over $539,900:   37%

If someone has an income of $75,000 in a year, their taxable income falls into three brackets. 

The first $10,275 is taxed at 10%, the next $31,500 ($41,775 – $10,275) is taxed at 12%, and the remaining $33,225 ($75,000 – $41,775) is taxed at 22%. 

So their total tax bill would be calculated as follows:

$10,275 x 10% = $1,027.50

$31,500 x 12% = $3,780.00

$33,225 x 22% = $7,309.50

Total tax bill = $12,117

How to calculate crypto capital gains

To calculate your crypto capital gains, you need to determine your cryptocurrency’s cost basis and fair market value (FMV) at the time of the taxable event. 

The taxable event can be selling, trading, or exchanging cryptocurrency for goods or services.

To calculate your capital gains or losses, you can use the formula:

It is important to keep accurate records of all cryptocurrency transactions, including the date, amount, FMV, and cost basis, to correctly calculate your capital gains or losses. 

When do you need to pay cryptocurrency taxes in the United States?

Capital gains tax events

Capital gains tax events are certain acts, such as the sale or exchange of an asset, that result in a taxable capital gain or loss. Cryptocurrency-specific capital gains tax events include:

• Selling cryptocurrency for fiat money.
• Trading one cryptocurrency for another.
• Using cryptocurrency to pay for goods or services.
• Receiving cryptocurrency in exchange for goods or services.

Each of these occurrences has the potential to produce a capital gain or loss, which must be declared on your tax return.

Income tax events

When cryptocurrency earnings are significant, the IRS categorizes some crypto transactions as subject to income tax.

Income tax events related to cryptocurrency transactions include:

• Mining: If you mine cryptocurrency, the value of the coins earned is considered taxable income at the time they are mined.
• Airdrops and forks: Airdrops and forks occur when a new cryptocurrency is created as a result of an existing one. Any new cryptocurrency received through airdrops or forks is considered taxable income.
• Staking rewards: If you participate in a proof-of-stake network and earn staking rewards, the value of the rewards is considered taxable income.
• Getting paid in cryptocurrency: If you receive cryptocurrency as payment for work or services performed, the value of the coins received is considered taxable income.
• Interest income: If you earn interest income from cryptocurrency lending or savings accounts, the value of the interest received is considered taxable income.
• Referral bonuses: bonuses the are paid in crypto for referral services
• Liquidity pool earnings: Earning new liquidity pool tokens, governance or reward tokens on DeFi protocols

Non-taxable events

Non-taxable events in the context of cryptocurrency refer to situations where the disposition of crypto assets does not trigger any tax liability.

 So you won’t pay taxes in events including:

• Buying and holding cryptocurrency without disposing of it
• Transferring cryptocurrency between your own wallets or accounts
• Donating cryptocurrency to a tax-exempt charity
• Cryptocurrency as a gift with a fair market value of $16,000 or less ($17,000 for 2023)
• Using cryptocurrency as collateral for a loan
• Inheriting cryptocurrency

It is important to note that while these events may not trigger a tax liability, they may still need to be reported on your tax return for record-keeping purposes.

How is selling crypto for fiat currency taxed?

Selling cryptocurrency for fiat money is considered a taxable event in the US. You must report any capital gains or losses from the sale on your tax return. 

The capital gain or loss is calculated by subtracting the cost basis of the cryptocurrency from the sale price. If the sale price exceeds the cost basis, you will have a capital gain, which will be taxed at the appropriate rate based on your tax bracket. 

If the sale price is lower than the cost basis, you will have a capital loss, which can be used to offset capital gains or deducted up to a certain amount on your tax return.

Do you pay taxes when buying goods and services using cryptocurrencies?

Yes, buying goods and services using cryptocurrencies may be subject to taxes, like if you sold the cryptocurrency for fiat currency. 

The taxable event would be the difference between the purchase price of the cryptocurrency and its fair market value at the time of the purchase of the goods or services. 

This difference would be treated as a capital gain or loss, depending on whether the fair market value is higher or lower than the purchase price.

How is trading one crypto for another taxed?

Trading one cryptocurrency for another is considered a taxable event in the United States. This means it is subject to capital gains or losses tax, depending on whether you made a profit or loss. 

The calculation is done by determining the fair market value of the cryptocurrency being sold, then subtracting the cost basis (the original purchase price of the cryptocurrency) to determine the capital gain or loss.

How are crypto margin trading, futures, and other CFDs taxed?

Crypto margin trading, futures, and other CFDs (contracts for difference) are generally taxed as capital gains or losses in the US, based on the difference between the cost basis (usually the purchase price) and the fair market value at the time of the trade.

How are NFTs taxed?

From a tax perspective, NFTs are treated similarly to other types of cryptocurrency. Any gains or losses from buying, selling, or trading NFTs are subject to capital gains tax.

You will owe taxes on the capital gains when you sell an NFT for a profit. 

If you hold the NFT for less than a year before selling it, you will be subject to short-term capital gains tax rates, the same as your ordinary income tax rates. 

If you hold the NFT for more than a year before selling it, you will be subject to long-term capital gains tax rates, generally lower than short-term rates.

How is receiving payment in cryptocurrencies taxed?

Usually, the cryptocurrency’s fair market value is used to determine how much was received, which is then declared as income on the taxpayer’s tax return. 

For instance, if a business pays an employee in cryptocurrency, the employee’s W-2 form would show the employee’s income at the cryptocurrency’s fair market value on the day it was received. 

Any gains or losses from selling the cryptocurrency after holding it for more than a year would be taxed at capital gains rates.

How is getting crypto in exchange for goods and services taxed?

When a person receives cryptocurrency in exchange for goods or services, the value of the cryptocurrency at the time of the exchange is treated as ordinary income for tax purposes. 

This means that the person must report the cryptocurrency’s fair market value as income on their tax return and pay taxes on it. 

The fair market value is determined based on the cryptocurrency’s exchange rate on the day of the transaction, which can be obtained from a reputable cryptocurrency exchange or market data provider. 

Failure to report this income can result in penalties and interest charges.

How are staking rewards taxed?

Staking rewards are usually taxed as income. The fair market value of a staking reward when it is received is included in your taxable income for the year. 

The type of cryptocurrency being staked and the length of the staking period are two variables that may affect how taxes are explicitly treated. 

To correctly determine your tax obligation, you must keep accurate records of your staking activities, including the fair market value of the prizes you received and the dates they were received. 

Using crypto tax software or consulting a tax expert can help ensure proper reporting and compliance with tax regulations.

How are DeFi transactions taxed?

According to the most recent IRS advice, the tax for DeFi (Decentralized Finance) transactions depends on whether you are considering earning or disposing of cryptocurrency. 

Remember that earning cryptocurrency occurs whenever you receive additional coins or tokens due to your transactions. This would cover several DeFi transactions.

However, the IRS has not released clear guidelines for DeFi transactions yet, nevertheless, the following tax treatments are relevant and may be seen as applicable:

How are mining rewards taxed?

Mining rewards are generally considered taxable income in the United States. The value of the cryptocurrency received as a reward is considered income at the time of receipt and should be reported on the miner’s tax return as either self-employment income or miscellaneous income, depending on the miner’s specific circumstances. 

Additionally, the miner may be able to deduct certain mining-related expenses, such as equipment and electricity costs, as business expenses. 

It is recommended to consult with a tax professional to report mining rewards and related costs properly.

How are airdrops taxed?

Airdrops are taxable at their fair market value on the day of receipt. The value of the airdrop should be included in your gross income for the tax year in which you got it, and depending on your tax bracket, you might have to pay taxes on that amount. 

As this information will be required to appropriately report the airdrop on your tax return, keeping accurate records of every airdrop you receive, including the date and fair market value of the asset received, is crucial.

How are hard forks taxed?

When a hard fork occurs, a new cryptocurrency is created and distributed to the holders of the original cryptocurrency. 

The IRS has not provided specific guidance on the tax treatment of hard forks. 

Still, it is generally considered taxable income at the time of receipt, with the value of the new cryptocurrency being the fair market value at the time of the fork. 

The new cryptocurrency would be subject to capital gains tax if sold or exchanged in the future. 

It is essential to keep accurate records of the date and value of the hard fork to ensure proper tax reporting.

How are referral bonuses taxed?

Cryptocurrency referral incentives are taxable income and must be declared on your tax return. The cryptocurrency’s fair market value on the day you receive the bonus often determines its value.

Keep thorough records of the referral bonus you received, the cryptocurrency’s fair market value on the day you received it, and any related costs or fees.

How are other rewards (learn to earn, play to earn, etc.) taxed?

A growing number of incentive systems allow users to earn cryptocurrencies by engaging in tasks, playing games, or learning new things. 

The fair market value of the cryptocurrency gained on the date of receipt is included in the individual’s taxable income, and these awards are often taxed as income. 

Market data providers or cryptocurrency exchanges are just two examples of the many places where the fair market value can be found.

To ensure correct tax reporting, individuals must maintain precise records of these benefits, including the date received and the fair market value at the time.

Is buying crypto with FIAT money (cash) taxed?

Buying crypto with FIAT money is not taxable, but you may have tax obligations depending on what you do with the crypto afterward. 

If you hold the crypto, you will only owe taxes once you sell or exchange it for another asset. 

If you trade the crypto for another asset or use it to buy goods or services, you may be subject to capital gains tax or income tax on any gains or profits you made. 

Additionally, if you receive the crypto as part of a business transaction, such as payment for services, you may need to report it as income on your tax return.

Is HODLing crypto taxed?

Holding crypto as a long-term investment is not a taxable event by itself. 

However, if you sell or exchange your crypto for another asset in the future, you may have taxable capital gains or losses depending on the fair market value of your crypto at the time of sale or exchange. 

Additionally, you may need to report any interest or staking rewards you earn while holding your crypto as income on your tax return.

Are crypto donations taxed?

According to the IRS, if you donate cryptocurrency to a recognized nonprofit organization, you won’t experience a capital gain or loss and won’t be subject to capital gains tax. 

Even donations to charities are deductible from your taxes. The cryptocurrency’s fair market value on the day you contributed will be the amount you can deduct from your charitable contributions.

To check a charity’s 501(c)3 status in the US, use the IRS’s database of exempt organizations. 

If you want to claim your donation as a tax deduction on your federal taxes, the charity must have 501(c)3 status. 

When you file your cryptocurrency taxes, you must complete Form 8283 if your donation exceeds $500. 

Also, the IRS is explicit that you must obtain a qualified appraisal to claim a deduction for cryptocurrency donations worth more than $5,000.

Is receiving crypto as a gift taxed?

If you receive crypto as a gift, it is not subject to paying tax on receipt of the gift. 

The recipient will inherit the cost basis of the crypto when they’re given the gift, so if you’re sending a gift, send this information to them too. 

If you don’t have this information, then their cost basis will be the gift’s fair market value on the day they receive it.

Is giving crypto as a gift taxed?

Up to $16,000 in cryptocurrency can be gifted tax-free per person. The annual gift tax exclusion is what it is called. 

This can reduce your overall tax burden by taking advantage of lower income tax rates in your household. 

If your donation exceeds this amount, as long as it doesn’t exceed the $12.06 million ($12.92 million) lifetime gift tax exemption in 2022, you won’t be required to pay gift tax. 

But you might have to submit Form 709.

Is transferring crypto from wallet to wallet taxed?

Transferring cryptocurrency from one wallet to another is not considered a taxable event in the United States. 

This means you do not owe any taxes when transferring your cryptocurrency holdings from one wallet to another. 

However, keeping track of the cost basis of your crypto assets and reporting any gains or losses when you sell or dispose of them in the future is essential.

Are crypto assets used as collateral for a loan taxed?

No, using cryptocurrency as collateral for a loan is not taxable because there isn’t a sale or other disposition happening to the cryptocurrency. 

Yet, depending on the fair market value of the crypto assets at the time of seizure, the lender may have a taxable event if the borrower defaults on the loan and the lender seizes the cryptocurrency assets.

Is ETH2 taxed?

Staking on Ethereum 2.0 involves locking up ETH as collateral to help support the network and validate transactions. 

The staking rewards received for participating in Ethereum 2.0 are generally considered taxable income, similar to mining rewards or interest from DeFi lending. 

Therefore, if you earn staking rewards, you will likely owe taxes on them. 

It is recommended to consult a tax professional or use specialized tax software to accurately calculate and report your ETH2 staking rewards.

How are crypto losses taxed?

Crypto losses can be used to offset capital gains in the same tax year. 

If the losses exceed the gains, up to $3,000 can be deducted against ordinary income, and any excess losses can be carried over to future tax years. 

It is essential to properly document the losses and report them on the tax return to take advantage of these deductions. 

Additionally, losses from cryptocurrency investments cannot be used to offset gains from other types of investments, such as stocks or real estate.

How are crypto fees taxed?

Crypto fees can be categorized into two types:

• Transfer fees: These are fees paid to the network for processing a cryptocurrency for sending or receiving crypto. Transfer fees are not tax-deductible and cannot be used to reduce your taxable income.
• Trading fees: These are fees paid to a cryptocurrency exchange or broker for executing a trade. Trading fees are considered deductible expenses and can be used to offset capital gains made from selling cryptocurrency. 

How is lost or stolen cryptocurrency taxed?

Crypto investors are not permitted to claim lost or stolen cryptocurrency as a capital loss by the IRS. It is an extreme position, and it wasn’t always like this. 

Before the Tax Cuts and Jobs Act, cryptocurrency investors could write off losses due to theft and other calamities as capital losses. But, following the passage of this statute, losses due to theft and casualty are no longer tax deductible. 

Hence, you’re out of luck if you lost your cryptocurrency as a result of a hack, a scam, or because you misplaced your private keys. 

If you can demonstrate ownership of the assets and submit a statement or other type of receipt from the exchange detailing how much you lost in the hack, losses that happened before 2017 may be deductible.

Therefore, you cannot make any form of deduction for losing cryptocurrency, whether due to misplacing your private keys or being taken by a con artist. 

The best action is to write it off and exclude it from your calculations. 

You may still have your item in some situations, such as when a rug is pulled, but it will be useless. From a tax viewpoint, this is excellent news for American investors because it allows them to recoup their losses by selling their assets and generating a capital loss to offset their gains. 

If you can, sell your tokens on an exchange or you might be able to utilize a native or non-custodial wallet to exchange your tokens for another token if they are no longer listed on an exchange. 

Lastly, you could send your tokens to a so-called burn wallet.

How are exchange bankruptcies taxed?

When a crypto exchange becomes bankrupt, the losses incurred by investors are treated as capital losses, which can be used to offset capital gains and reduce taxable income. 

However, the specific tax implications will depend on the individual circumstances of each investor and should be discussed with a qualified tax professional.

How to calculate your crypto cost basis in the US?

The original purchase price of your crypto assets, also called the “cost basis,” must be known to calculate your crypto cost basis in the US. 

When you sell or swap your crypto assets, the capital gains or losses are determined using the cost basis.

Here are a few typical techniques for figuring out your cryptocurrency cost basis:

1. FIFO (First-in, First-out) Method assumes that the first crypto assets you acquire are the first ones you sell or exchange. To calculate your cost basis, you would use the original purchase price of the first crypto assets you acquired.
2. HIFO (Highest-in, First-out) Method is an alternative to the commonly used FIFO (First-in, First-out) method for calculating the cost basis of cryptocurrencies and can be used for calculating the crypto cost basis in the United States. Under the HIFO method, the crypto asset with the highest purchase price is sold or exchanged first, with the purchase price of that asset used as the cost basis. This can be particularly advantageous for long-term investors who may have acquired crypto assets at different times and prices. While the IRS has not explicitly addressed the HIFO method in its guidance on cost-basis calculation for cryptocurrencies, it is generally accepted as an alternative method to FIFO and may be preferable in some situations. 
3. Specific Identification Method: This method allows you to select which specific crypto assets you are selling or exchanging and use their original purchase price as your cost basis.
4. Average Cost Method: This method takes the total cost of all your crypto assets and divides it by the total number of assets to determine the average cost per asset. This average cost is used as the basis for all future sales or exchanges.
5. As of 2021, the LIFO (Last-in, First-out) method cannot be used to calculate the crypto cost basis in the United States. The IRS has not explicitly allowed LIFO to calculate the cost basis of cryptocurrencies. In 2019, the IRS issued guidance stating that specific identification, FIFO, and average cost methods are acceptable for calculating the cost basis of cryptocurrencies. However, the guidance did not mention LIFO as an acceptable method.

It is important to note that the specific method you choose can have significant tax implications, and it is best to consult with a qualified tax professional to determine which method is right for you.

Which crypto tax accounting method is best?

There isn’t a single, universally applicable “optimal” crypto tax accounting technique in the US. 

The best approach will rely on your unique circumstances and the type of cryptocurrency transactions you conduct.

While selecting a crypto tax accounting technique, keep the following things in mind:

1. Trade frequency: The precise identification method can be your best bet if you make transactions frequently. When using this strategy to sell or exchange some items, you can pick the assets with the highest cost basis, lowering your taxable gains.
2. Holding period: The HIFO technique may be preferable to FIFO if you’ve kept your assets for a considerable time because it will likely produce smaller taxable gains.
3. The complexity of transactions: The average cost approach may be the simplest to apply and can assist in simplifying your tax reporting if you have a lot of transactions or if your transactions involve various assets.

Finally, thinking about how each strategy will affect your taxes is critical. To determine which approach might be the most tax-efficient for your circumstances, speak with a certified tax practitioner. 

The best approach will ultimately rely on your circumstances and can include a comprehensive examination of your transaction history.

Ways to reduce your cryptocurrency taxes

There are several ways to reduce your crypto taxes in the US. Here are some strategies you can consider:

Tax-loss harvesting

If you have capital losses from your crypto transactions, you can use them to offset your capital gains and reduce your tax liability. This is known as tax-loss harvesting. Be sure to follow the IRS guidelines for tax-loss harvesting to ensure you use the strategy correctly.

Holding period

If you hold your crypto assets for over a year, you will be subject to long-term capital gains tax rates, generally lower than short-term rates. Consider holding your assets for at least a year before selling or exchanging them to take advantage of these lower rates.

Charitable donations

Donating crypto assets to a qualified charity can result in a tax deduction for the fair market value of the assets at the time of the donation. This can reduce your tax liability and support a good cause simultaneously.

Maximizing deductions

If you are mining crypto or using it for business purposes, you may be able to deduct certain expenses related to your activities. Be sure to keep careful records and consult with a qualified tax professional to ensure that you are maximizing your deductions.

Pick the right cost basis method

Choosing the right cost basis method for your crypto transactions can potentially reduce your tax liability in the US. The cost basis method you choose can have a significant impact on the amount of capital gains or losses you report on your tax return.

For example, if you have held your crypto assets for a long time and they have appreciated in value, using the HIFO (Highest-in, First-out) method for calculating your cost basis may result in a lower tax liability than using the FIFO (First-in, First-out) method.

Alternatively, if you trade frequently and have a high volume of transactions, the specific identification method may be the best option for you, as it allows you to select which assets to sell or exchange based on their cost basis, potentially reducing your tax liability.

It is important to note that choosing the right cost basis method can be complex, and the best method will depend on your specific situation and transaction history.

Ways to avoid crypto taxes in the US

HODL

HODLing cryptocurrency, or simply holding it, does not avoid crypto tax in the US. 

Whether you realize gains from selling or exchanging cryptocurrency or simply holding it, you may still be subject to capital gains taxes, depending on the amount and timing of your transactions.

In general, any profits you make from the sale or exchange of cryptocurrency are subject to capital gains taxes, regardless of whether you held the asset for a short or long period. 

Short-term capital gains are taxed at your ordinary income tax rate, while long-term capital gains are taxed at a lower rate. 

Additionally, if you receive cryptocurrency as payment for goods or services, that income is subject to ordinary income tax. 

Similarly, if you mine cryptocurrency, you must also report that income and pay taxes on any profits.

Gift and donate

If you receive crypto as a gift, you won’t have to pay taxes on the gift itself, but you might if you later sell or swap the cryptocurrency. 

You might be able to claim a tax deduction for the fair market value of any crypto you donate to a recognized charity on your tax return. 

However, your deduction will be capped at your cost basis in the asset rather than its fair market value if you have only owned the cryptocurrency for less than a year. 

To accurately report your transactions and determine your tax liability, keeping meticulous records of all cryptocurrency gifts, contributions, sales, and exchanges is crucial.

Invest in IRAs

Investing in Individual Retirement Accounts (IRAs) can provide tax benefits for your investments, including those in cryptocurrencies. However, IRAs only partially avoid crypto taxes in the US.

There are different types of IRAs, including traditional IRAs and Roth IRAs, and the tax implications of investing in each type of IRA can vary. 

In general, contributions to traditional IRAs may be tax-deductible, while withdrawals in retirement are subject to income tax. 

On the other hand, contributions to Roth IRAs are made with after-tax dollars, but withdrawals in retirement are tax-free.

If you invest in cryptocurrencies through an IRA, any gains you make from the sale or exchange of the assets are generally only taxed once you withdraw the funds from the account. 

However, taxes and penalties may be associated with early withdrawals, and if you hold the assets in a traditional IRA, you will be subject to income tax on the funds when you withdraw them. 

It is important to note that restrictions and regulations are associated with investing in IRAs, and not all IRAs allow for investments in cryptocurrencies.

Capital Gains Tax (CGT) allowance

The Capital Gains Tax (CGT) allowance does not apply to cryptocurrency transactions by means. In the US, any profits you make from the sale or exchange of cryptocurrency are generally subject to capital gains taxes, regardless of the amount. 

However, if your total taxable income is less than or equal to $41,675 in 2022 (for single or married filing separately) you will pay no tax. ($83,350 for married filing; $55,800 for head of household)

Do you have to report crypto on taxes?

In the United States, you must report your cryptocurrency transactions on your taxes. 

The Internal Revenue Service (IRS) considers cryptocurrency to be property, and any profits or losses from the sale or exchange of cryptocurrency are subject to capital gains taxes.

If you sell, exchange, or otherwise dispose of cryptocurrency, you must report the transaction on your tax return, including the transaction date, the asset’s fair market value at the time of the transaction, and your cost basis in the asset. 

You may also be required to pay taxes on any gains you realize from the transaction, depending on various factors such as your income, the length of time you held the asset, and the specific cost basis method you use. 

It is essential to keep accurate and detailed records of all your cryptocurrency transactions to properly report them on your tax return and comply with tax regulations.

What happens if you don’t report your crypto gains?

In the US, not disclosing cryptocurrency gains on your tax return may subject you to fines, interest charges, and even possible legal repercussions.

According to the Internal Revenue Service (IRS), failing to declare bitcoin earnings is a significant tax evasion felony. You may be subject to fines, penalties, and even criminal prosecution if the IRS determines that you failed to declare bitcoin gains.

Significant fines and interest charges on the amount of taxes owed are possible consequences for neglecting to disclose cryptocurrency gains. 

The fines might be as much as 75% of the underpaid tax, depending on the details of your case.

In addition to the financial penalties, failing to report cryptocurrency gains can damage your reputation and lead to legal consequences. 

The IRS has been cracking down on cryptocurrency tax evasion in recent years. They have the resources and legal authority to pursue individuals and businesses who fail to comply with tax laws.

IRS warning letter 6173

The Internal Revenue Service (IRS) notifies taxpayers who have either not filed their tax returns or who have underreported their income with an IRS Warning Letter 6173. 

The letter serves as notice from the IRS that the taxpayer may owe taxes and urges them to take the necessary steps to comply with their tax obligations.

A list of steps the taxpayer must take to resolve the situation will often be included in the letter, including filing any unfiled tax forms, paying any back taxes, and supplying proof of their claimed income and deductions.

The IRS could also ask the taxpayer to reply to the letter within a predetermined window of time, usually within 30 days. 

Any warning letter from the IRS should be taken seriously because failing to take appropriate action may result in fines, interest charges, and possible legal repercussions. If you get a Warning Letter 6173 from the IRS, a qualified tax professional should be consulted to identify the best course of action to comply with your tax responsibilities and prevent any penalties or legal repercussions.

IRS warning letter 6174 and 6174-A

The IRS notifies individuals who have transacted in cryptocurrencies but may not have appropriately disclosed those transactions on their tax filings via IRS Warning Letters 6174 and 6174-A.

These letters are intended to educate individuals about their tax reporting requirements linked to cryptocurrencies; they are not formal audits in the traditional sense. 

Typically, the letters explain how bitcoin transactions are taxed and urge taxpayers to check their tax returns to ensure they have correctly disclosed any cryptocurrency transactions.

Receiving a Warning Letter 6174 or 6174-A does not always imply that the IRS has found a problem with a taxpayer’s tax returns. Still, it indicates that the IRS is aware of the taxpayer’s possible tax responsibility and is urging them to take corrective action to meet their tax obligations. 

It is crucial to verify your tax returns after receiving a Warning Letter 6174 or 6174-A to ensure that you have appropriately declared any bitcoin transactions. 

It is a good idea to speak with a trained tax professional if you are unsure how to record your crypto transactions accurately or have concerns about your tax obligations associated with cryptocurrencies.

Fines and criminal charges

Failing to declare cryptocurrency earnings can lead to both civil fines and criminal indictments. 

The details of the failure to file a report and the amount of undeclared income determine the exact fines and charges. 

In addition to potential fines and interest charges on any unpaid tax debt, civil penalties may apply if taxes are paid late or insufficiently. These fines can easily mount up, particularly if the individual has sizable unreported cryptocurrency earnings.

Failure to declare cryptocurrency gains may result in criminal charges and civil penalties.

In cases where there is evidence of deliberate noncompliance, the IRS and the Department of Justice (DOJ) have stated that they will actively investigate cases involving unreported cryptocurrency transactions and may file criminal tax evasion or fraud charges.

Taxpayers found guilty of tax fraud or evasion may be subject to hefty fines and jail time. 

The exact penalties depend on the case’s particulars, such as the amount of undisclosed income, how long the income went unreported, and whether there is proof of deliberate or intentional noncompliance.

What happens if you forget to report your crypto taxes?

If you forget to report your crypto taxes in the US, you could be subject to penalties and interest on any taxes owed. The specific penalties and interest charges will depend on the circumstances of your failure to report and the amount of unreported income.

Suppose the IRS discovers that you have not properly reported your crypto taxes. In that case, they may send you a notice of deficiency or a proposed assessment, including the additional taxes, penalties, and interest owed. 

The penalties and interest charges can add up quickly, especially if you have significant crypto gains that have not been reported.

The penalties for failure to report your crypto taxes can include a late payment penalty, which is 0.5% of the unpaid tax per month, up to a maximum of 25% of the total tax owed. There is also a penalty for failure to file a tax return, which is 5% of the unpaid monthly tax, up to 25% of the total tax owed.

In addition to penalties and interest charges, failure to properly report your crypto taxes could result in an audit or investigation by the IRS, which can be time-consuming and stressful.

To avoid these penalties and potential legal consequences, it is vital to report your crypto taxes on your tax return correctly and to consult with a qualified tax professional if you are unsure about your reporting obligations or have questions about how to report your crypto gains properly.

Can the IRS track cryptocurrency?

The IRS is able to monitor cryptocurrency transactions. Even though most crypto transactions are decentralized and anonymous, the IRS has been stepping up its efforts to monitor and enforce compliance with tax reporting requirements connected to cryptocurrencies. 

The IRS receives 1099 forms from significant exchanges like Coinbase that include your information and records of your cryptocurrency income. 

The IRS has recently collaborated with third-party businesses like Chainalysis to monitor cryptocurrency transactions on various blockchain networks. 

The IRS has also been serving subpoenas and summonses on cryptocurrency exchanges and other firms to produce documents about consumer cryptocurrency transactions.

In addition, the IRS has been reminding taxpayers of their tax reporting duties linked to crypto gains while stepping up its inspection of taxpayers who own or use cryptocurrencies. 

Also, it is now more challenging for taxpayers to avoid disclosing their cryptocurrency transactions because the IRS added a question about cryptocurrencies to the 1040 tax form.

Which crypto exchanges report to the IRS?

In the United States, all cryptocurrency exchanges are required to report certain transaction information to the IRS under the Bank Secrecy Act (BSA). This information includes customer names, addresses, social security numbers or tax identification numbers, and transaction details such as amounts and dates. 

Some of the larger cryptocurrency exchanges that have publicly stated that they will provide information to the IRS include Coinbase, Gemini, Kraken, and Bitstamp. 

Tips on preparing for the crypto tax period

Here are some tips on preparing for the crypto tax period in the US:

Gather your information

Understand your tax obligations: Familiarize yourself with the IRS guidance on cryptocurrency and tax reporting obligations. This can help you understand which transactions are taxable, how to report your gains and losses, and what forms you must file.

Take advantage of tax-saving strategies: Consider tax-saving strategies like tax-loss harvesting and holding cryptocurrencies for over a year to take advantage of the long-term capital gains tax rate.

Review your prior tax returns: If you have previously filed taxes and may have failed to report your cryptocurrency transactions, it is essential to review your previous tax returns and consult with a tax professional to determine if you need to file amended returns to correct any errors.

Familiarize yourself with the forms 

If you are planning to report your cryptocurrency transactions on your tax return in the US, it is important to be familiar with the specific forms and schedules you will need to file. 

Here are some of the most common forms that may apply to crypto tax reporting:

• Form 1040 is the main form that individuals use to file their annual income tax returns with the IRS. It includes information on your income, deductions, and credits.
• Schedule D: This form reports capital gains and losses from selling or exchanging assets, including cryptocurrencies. You must list each transaction separately and calculate your gain or loss.
• Form 8949: This is an additional form you may need to file if you have multiple capital gains or losses to report on Schedule D. You’ll use this form to provide more detailed information on each transaction.
• Form 1099-K: Some cryptocurrency exchanges may issue a Form 1099-K to their users if they exceed certain thresholds for transaction volume and gross receipts. This form reports the total payments you received from the exchange during the year.
• Form 1099-B: If you sold cryptocurrency through a broker or other intermediary, they might issue a Form 1099-B to report the sale and related information.

It is important to note that the specific forms and schedules you will need to file may depend on the nature and volume of your cryptocurrency transactions and other factors specific to your tax situation.

Use crypto tax software to calculate your gains and losses

There are various advantages to using a crypto tax program to figure out your earnings and losses.

Listed below are a few good reasons for utilizing one:

Accuracy

There is a greater probability of making mistakes while manually calculating your cryptocurrency gains and losses. Automating the process and ensuring that your calculations are correct and in compliance with tax rules is the main purpose of a crypto tax software.

Time-saving

Using cryptocurrency tax software can save you a lot of time compared to manually calculating your taxes. The software can swiftly produce your tax returns and paperwork by quickly importing transactions from exchanges and wallets.

Cost-effective

While using crypto tax software can be pricey depending on your number of transactions, it may still be way less expensive than paying a tax expert to prepare your taxes by hand. Furthermore, many crypto tax platforms provide cost-effective pricing packages that people with various budgets can use. 

Crypto tax software can help you lower the risk of mistakes and possible audit triggers. Knowing that your tax reporting is accurate and complying with requirements might help you relax.

Convenience

Using crypto tax software, you can easily track your crypto tax obligations and stay up to date with changes to tax laws and regulations. You can also store your tax reports and forms in a single, organized location for easy reference and retrieval.

Which records do you need to keep?

When it comes to filing crypto taxes in the US, it is important to keep detailed records of all of your crypto transactions.

Here are some of the records you should keep:

• Date and time of each crypto transaction
• Type of transaction (buy, sell, trade, or transfer)
• Amount of cryptocurrency involved in each transaction
• The value of the cryptocurrency in USD at the time of the transaction
• The cost basis of the cryptocurrency involved in each transaction
• Profit or loss you made for each asset
• Any fees or commissions associated with the transaction
• The exchange or wallet used for each transaction
• Any relevant receipts or invoices

You should also keep records of your holdings and any transfers or transactions between your accounts. 

The IRS has a six-year window to examine tax returns, so it is essential to retain these records for at least that long to guarantee you have the data you need in the event of an audit.

Crypto Tax Deadlines in the US

In the US, the tax deadline for crypto transactions is the same as for traditional investments. Here are the critical deadlines to keep in mind:

• April 15: This is the tax filing deadline for most individuals in the US. If you earn income from crypto, you need to report it on your tax return.
• June 15: This is the tax filing deadline for US citizens and residents living outside of the country.
• October 15: If you filed for a tax extension, this is the final deadline to submit your tax return.

It is important to note that these deadlines apply to income earned from crypto trading, mining, staking, and other crypto-related activities. Filing and paying your taxes on time is also important to avoid late fees and penalties.

Learn more about crypto tax deadlines.

How to report crypto taxes with the IRS?

To report your crypto taxes with the IRS, you must include your capital gains or losses on your tax return. Here is a general overview of how to report your crypto taxes:

1. Complete Form 8949: Use Form 8949 to report your capital gains or losses from your crypto transactions.
2. Transfer information to Schedule D: Transfer the information from Form 8949 to Schedule D.
3. Complete Form 1040: Use Form 1040 to report your overall income, including capital gains or losses from crypto transactions.
4. File your tax return: File your tax return by the tax deadline (usually April 15th, unless it falls on a weekend or holiday), or request an extension if needed.

It is essential to keep accurate records of your crypto transactions, including the purchase price, date of purchase, sale price, and date of sale. 

Blockpit: Use crypto tax software to generate fool-proof crypto tax reports

Blockpit is a crypto tax software that can help you generate crypto tax reports for your tax return. 

The software allows you to import all of your crypto transaction data from various exchanges and wallets and then automatically calculates your capital gains or losses. 

Blockpit also provides features such as real-time tax calculation and unrealized gains or losses in a precise overview. 

Using a crypto tax software like Blockpit can help simplify the process of calculating and reporting your crypto taxes and reduce the risk of errors and potential audits from the IRS.

Using Blockpit couldn’t be easier:

1. Import your transactions

Blockpit offers direct integrations for crypto exchanges, wallets and DeFi protocols. Automatically import your transactions via API integration, wallet address synchronization, or by manually uploading an Excel file. 

Discover all crypto integrations

2. Validate & Optimize

Blockpit offers smart insights and suggestions to optimize your tax report, fix issues, add missing values and to validate your transactions.

3. Generate your tax report

Generate your compliant tax report with the click of a button. Our tax engine calculates your tax report on the basis of the US tax framework.

File your crypto taxes with TaxAct

TaxAct is a tax preparation software that offers a dedicated crypto tax importer to help individuals and businesses file their crypto taxes. The platform provides a simple process to import your cryptocurrency transaction data from various exchanges and wallets, calculate your gains and losses, and generate accurate tax forms.

File your crypto taxes with TurboTax

TurboTax is a popular tax preparation software that offers a crypto tax solution to help individuals and businesses file their crypto taxes efficiently. 

If you have already calculated your crypto taxes using Blockpit, there may not be a significant benefit to using TurboTax for filing your taxes. However, TurboTax can still be a helpful tool for individuals who prefer to file their taxes on their own rather than hiring a tax professional. 

Some of the benefits of using TurboTax include:

• User-friendly interface: TurboTax is designed to be user-friendly, with a step-by-step guide to help you navigate the tax filing process.
• Integration with other tax forms: If you have income from sources other than crypto, TurboTax can help you file all of your tax forms in one place.
• Audit protection: TurboTax offers audit protection, which can provide peace of mind for individuals who are concerned about being audited by the IRS.
• Expert support: If you have questions or need help with your tax filing, TurboTax offers expert support from tax professionals.

Overall, while TurboTax may not offer significant benefits if you have already calculated your crypto taxes using Blockpit, it can still be a useful tool for individuals who prefer to file their taxes on their own.

Can I use Crypto tax software in combination with TurboTax

Yes, you can use crypto tax software in combination with TurboTax. When you use a crypto tax software like Blockpit, it can help you track your transactions, calculate your gains and losses, and generate tax reports. Once you have generated these reports, you can import the data into TurboTax to make the tax filing process simpler and more efficient. To import your crypto tax data into TurboTax, you can typically use the “TurboTax Online” or “TurboTax Desktop” version. 

File your crypto taxes with paper forms

In the US, you can submit your crypto taxes using paper forms, but doing so is not advised because it can be time-consuming and error-prone.

The IRS offers several forms for reporting bitcoin transactions and paying taxes, including Form 8949, Schedule D, and Form 1040. 

These forms are available on the IRS website or at a nearby IRS office. 

You must manually calculate your gains and losses and enter them on the relevant forms to file your crypto taxes using paper forms. 

Together with your papers, you must submit any payments made for appropriate taxes. 

It is crucial to remember that the IRS strongly advises taxpayers to file their taxes electronically whenever possible because it can often be quicker and more precise.

US tax forms for your crypto tax declaration

Form 1040 – Individual Income Tax Return

Form 1040 is the US Individual Income Tax Return form that is used to report your personal income and tax liability to the IRS. This form is used by all taxpayers, including those who need to report their crypto taxes. The form requires you to report all sources of income, including any gains or losses from the sale or exchange of cryptocurrencies.

Schedule 1 – Additional Income and Adjustments to Income

Schedule 1 is a tax form used to report additional income or adjustments to income. This form is often used by taxpayers to report income from self-employment, capital gains, rental income, and other sources. Schedule 1 is also used to report certain tax credits, such as the Earned Income Tax Credit and the Additional Child Tax Credit. In regards to crypto taxes, Schedule 1 is used to report any gains or losses from the sale or exchange of cryptocurrencies, and to report any income from mining or staking activities.

Schedule C – Profit or Loss from Business

Schedule C is a tax form used by sole proprietors to report their business income and expenses. It is used to calculate the net profit or loss of the business, which is then reported on the individual’s personal income tax return. In regards to crypto taxes, Schedule C may be used to report income from cryptocurrency mining or staking activities, or for individuals who buy and sell cryptocurrencies as part of a business or trade.

Schedule D – Capital Gains and Losses

Schedule D is a tax form used to report capital gains and losses from the sale or exchange of assets, including stocks, bonds, mutual funds, and other securities. Taxpayers use this form to calculate their net capital gains or losses for the year, which are then reported on the individual’s personal income tax return. Regarding cryptocurrency, Schedule D is used to report capital gains and losses from the sale or exchange of cryptocurrencies, which are treated as capital assets for tax purposes. Taxpayers must report each transaction on Form 8949, and then summarize the information on Schedule D.

Schedule SE – Self-Employment Tax

Schedule SE is a tax form used to calculate and report self-employment tax. This form is used by taxpayers who are self-employed, including those who earn income from cryptocurrency mining or trading. Self-employment tax is a tax that is paid by individuals who work for themselves and are not considered employees of another company. The tax is calculated based on a percentage of the taxpayer’s net earnings from self-employment.

Form 8949 – Sales and other Dispositions of Capital Assets

Form 8949 is a tax form used to report capital gains and losses from the sale or exchange of capital assets, including cryptocurrencies. Taxpayers must file Form 8949 to report each individual transaction in which they sold or exchanged cryptocurrency for FIAT money or other property. The form requires taxpayers to provide information such as the transaction date, the type of asset sold or traded, the asset’s cost basis, the amount received for the asset, and the gain or loss on the transaction. Form 8949 is filed along with Schedule D, which summarizes the taxpayer’s total capital gains and losses for the year.

FBAR – Report of Foreign Bank and Financial Accounts

FBAR stands for Foreign Bank Account Report, a form that specific individuals and entities must file with the Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department. The purpose of the FBAR is to report foreign financial accounts held outside of the United States if the aggregate value of those accounts exceeds $10,000 at any time during the calendar year. The FBAR is required to be filed by US citizens, US residents, and entities formed under the laws of the United States, as well as foreign entities that are engaged in business in the United States or have a US financial interest. The FBAR is not a tax form but rather a financial disclosure form, and failure to file the FBAR can result in significant penalties.

FATCA – Foreign Account Tax Compliance Act

FATCA (Foreign Account Tax Compliance Act) is a US law that requires foreign financial institutions to report certain financial accounts held by US taxpayers to the IRS. The purpose of FATCA is to prevent US taxpayers from using offshore accounts to evade US taxes. Under FATCA, foreign financial institutions must report information about accounts held by US taxpayers to the IRS or face significant penalties. US taxpayers must also report their foreign financial accounts on Form 8938 as part of their federal income tax return.

1099-B – Proceeds from Broker and Barter Exchange Transactions

Form 1099-B is a tax form used in the United States to report proceeds from the sale of stocks, bonds, mutual funds, and other securities, including cryptocurrency. Crypto exchanges and other brokers are required to issue this form to their customers if they sold, traded, or exchanged crypto assets during the tax year. The 1099-B form provides essential information to taxpayers and the IRS, such as the date of sale, gross proceeds, and cost basis of the asset sold. It is used to help calculate capital gains and losses for tax reporting purposes.

1099-DA – Digital Assets

Non-employment income (money you receive outside your job) is reported to the IRS using Form 1099. Form 1099 is currently available in various iterations. Forms 1099-B, 1099-MISC, and Form 1099-K are the ones that crypto exchanges use the most frequently.

The IRS will soon unveil a new version of the Form 1099, which will be specifically designed to handle the reporting of cryptocurrencies and digital assets (DA) in general. This is based on the American infrastructure bill, signed by President Biden in November 2021, where crypto exchanges will be required to report their customer’s capital gains and losses to the IRS through 1099 forms starting in the 2023 tax year and the Form 1099-DA is likely to be the form to track all customers’ activity. Form 1099-DA and how it will differ from other 1099 forms are currently not the subject of any official information. However, several industry analysts predict that particularly cryptocurrency exchanges would no longer be needed to declare cost basis and will need to report gross proceeds from crypto disposals made on their platform. The taxpayer will therefore be responsible for keeping track of the costs basis for all of their crypto reporting.

1099-MISC – Miscellaneous Income

Form 1099-MISC is a tax form used to report miscellaneous income paid to non-employees, such as independent contractors, freelancers, and other self-employed individuals. This form is used by businesses to report payments made to service providers who are not employees, such as payments for rent, royalties, or other types of income. However, it is important to note that 1099-MISC is not typically used for reporting cryptocurrency transactions or gains. Instead, cryptocurrency transactions and gains are reported using Form 8949 and Schedule D of the tax return.

1099-K – Payment Card and Third-Party Network Transactions

Form 1099-K is a tax form used for reporting certain types of payment transactions to the IRS. Third-party settlement organizations typically use it to report payments made to merchants or other parties. Some cryptocurrency exchanges issue Form 1099-K if you have over 200 transactions and $20,000 in volume, but not all do. It is important to keep track of your transactions and report them on your tax return regardless of whether you receive a 1099-K or not.

1099-NEC – Nonemployee Compensation

Form 1099-NEC is a tax form used in the US to report payments made to non-employees, such as independent contractors or freelancers. Businesses typically use it to report payments of $600 or more made to non-employees in a given tax year. The form also reports any federal or state taxes withheld from those payments. However, it is not typically used to report cryptocurrency transactions.

Common challenges when reporting your crypto taxes

Understanding the tax ramifications of various types of cryptocurrency transactions, keeping track of all the information required for reporting, and navigating the intricate and constantly evolving cryptocurrency tax regulations are just a few of the common challenges when filing your crypto taxes. 

It can also be challenging to identify and trace all of your cryptocurrency transactions due to the decentralized and anonymous nature of cryptocurrencies, mainly if you’ve used multiple exchanges or wallets. 

Accurate reporting may be ensured, and the procedure can be made simpler by using crypto tax software.

Crypto taxes in other countries

Cryptocurrency tax laws vary by country and may be subject to change. Generally, most countries require taxpayers to report cryptocurrency gains and losses on their tax returns. Some countries may treat cryptocurrency as a currency, while others may treat it as a commodity, security, or asset class.

For example, in Canada, cryptocurrency is considered a commodity subject to capital gains tax. In the United Kingdom, cryptocurrency is subject to capital gains tax and, in some cases, income tax. In Australia, cryptocurrency is considered property and is subject to capital gains tax. In Japan, cryptocurrency gains are subject to income tax and, in some cases, capital gains tax.

Frequently asked crypto tax questions

What is cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses cryptography for security. It is decentralized and operates independently of a central bank. Cryptocurrencies are based on blockchain technology, a distributed ledger that records and verifies transactions. Some popular cryptocurrencies include Bitcoin, Ethereum, Ripple, and Cardano.

What is a capital gain?

A capital gain refers to the profit realized when an asset, such as stocks, real estate, or cryptocurrency, is sold for a higher price than its purchase price. It is calculated as the difference between the selling price and the asset’s purchase price. 

What is a capital loss?

A capital loss is a decrease in the value of an investment or asset compared to its purchase price. It occurs when the asset’s selling price is lower than the purchase price. Capital losses can be used to offset capital gains for tax purposes.

Is trading one cryptocurrency for another a taxable event?

Yes, trading one cryptocurrency for another is generally considered a taxable event in the US. This is because the IRS treats cryptocurrency as property, and exchanging one property for another is taxable.

Is crypto taxed like stocks?

Cryptocurrencies are treated as property for tax purposes rather than stocks or currency in the US. This means that capital gains and losses from the sale or exchange of cryptocurrencies are subject to taxation like other types of property.

How do I pay taxes on crypto?

In the US, you pay taxes on your crypto by reporting your capital gains or losses on your tax return. You will report your capital gains or losses on Form 8949 and Schedule D of your tax return. 

How are NFTs taxed?

NFTs (non-fungible tokens) are a relatively new asset class, and the tax treatment of NFTs is still evolving. Generally, NFTs are treated as property for tax purposes, meaning that buying, selling, or trading NFTs can result in capital gains or losses. If you sell an NFT for more than you paid, you will owe capital gains tax on the profit. If you held the NFT for more than a year, the long-term capital gains tax rate applies, which is lower than the short-term capital gains tax rate.

Written by: Florian Wimmer

As one of the founders of Blockpit, Florian Wimmer has been deep into crypto assets since 2015 and has been dealing with the complexity of the tax treatment of crypto assets for several years.

Reviewed by: Mag. Georg Brameshuber

Mag. Georg Brameshuber is tax advisor and legal scholar in cryptoeconomics. He is a Fellow at the Institute for Financial Law in Vienna and Web3 entrepreneur.