Crypto Tax

Yes, cryptocurrency income is taxable in the U.S. The IRS classifies crypto as property, not currency, which means capital gains tax applies when you sell, trade, or spend it. Buying and holding crypto isn’t taxable, but disposing of it – whether by selling for fiat (e.g., USD), trading one coin for another, or using it to buy goods or services – triggers a taxable event. Short-term capital gains (held one year or less) are taxed at ordinary income rates (10%–37%), while long-term gains (held over a year) are taxed at reduced rates (0%, 15%, or 20%), depending on your income.

If you receive crypto through mining, staking, airdrops, or as payment for services, it is treated as ordinary income – taxable at rates ranging from 10% to 37% – and must be reported. Taxpayers must disclose crypto activity on IRS Form 1040. Capital gains from crypto sales are reported on Form 8949 and Schedule D, while crypto income is reported on Schedule 1 or C, depending on the nature of the activity. Accurate record keeping is essential for tax compliance. Starting in 2025, cryptocurrency brokers are required to issue Form 1099-DA to report crypto sales to the IRS.

You must report all taxable cryptocurrency transactions on your tax return. This includes:

• Selling or trading crypto for fiat (e.g., USD) or another cryptocurrency.
• Using cryptocurrency to purchase goods or services.
• Receiving crypto as income (e.g., payments for work or services).
• Earning mining or staking rewards (classified as ordinary income).

How to Report Crypto on Taxes:

• Capital gains/losses from selling, trading, or spending crypto are reported on Form 8949 and Schedule D.
• Crypto income from mining, staking, or compensation is reported on:
  • Schedule C (if self-employed or operating a business)
  • Schedule 1 (for other miscellaneous income)
• For mining and staking, report the fair market value (FMV) of the crypto at the time it was earned as ordinary income.

The IRS expects you to document the following for every transaction:

• Transaction date
• Cost basis (purchase price)
• Fair market value at the time of each transaction
• Proceeds received from the sale, trade, or use of crypto
• Wallet addresses and transaction IDs

Failing to report taxable crypto activity can result in penalties, audits, or interest charges. It is also important to know that the IRS has increased its focus on cryptocurrency tax compliance. To ensure compliance and minimize risk, consider consulting experienced U.S. crypto tax lawyers – such as the team at taxlawyer.com.

The tax you owe on cryptocurrency depends on how long you held it and your income level.

• Short-term capital gains (crypto held for one year or less) are taxed as ordinary income at federal tax rates ranging from 10% to 37%, based on your tax bracket.
• Long-term capital gains (crypto held for more than one year) are taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income.

If you earn cryptocurrency as income (from mining, staking, or payment for services), it is taxed as ordinary income rates (10%–37%) based on your total earnings for the year. Self-employed individuals may also owe self-employment tax (15.3%).

Crypto Tax Tip: You only pay tax when a taxable event, such as a sale or trade, occurs — not for simply buying or holding crypto.

In the U.S., not all crypto transactions are taxable. While some may not trigger a tax, they might still require reporting or documentation. Here are common non-taxable crypto activities:

• Purchasing crypto with USD/fiat
• Transferring crypto between your own wallets and exchanges
• Holding crypto, even if the value increases
• Giving or receiving crypto as a gift (within limits)
• Donating crypto to a qualified nonprofit organization

Crypto mining tax refers to how the IRS treats cryptocurrency earned through mining activities. In the US, income from crypto mining is taxed as ordinary income at your marginal tax rate (10%–37%), based on your total taxable income for the year. The fair market value (FMV) of the mined cryptocurrency at the time you receive it is considered taxable income. If you mine as part of a business or trade, you are also subject to 15.3% self-employment tax.

If you operate your mining activity as a business, you may deduct mining-related expenses, including electricity, computers, equipment, and other necessary costs. However, if you mine as a hobby, deductions are limited, and you cannot claim business losses against other income. Additionally, if you later sell or trade the mined coins, any gain or loss is subject to capital gains tax, based on the change in value from the time you received the coins to the time of disposal.

Crypto Tax Tip:  Accurate record-keeping of mining dates, coin values, and sales is essential to remain compliant and avoid IRS penalties.

You can use crypto losses to reduce your tax liability by offsetting capital gains and, in some cases, deducting the crypto losses against ordinary income. But first, it’s important to know what qualifies as a crypto loss:
A crypto loss occurs when you sell, trade, or spend cryptocurrency for less than what you originally paid (your cost basis). Losses from holding, lost, or stolen crypto generally do not qualify for tax deductions.

Here’s how to claim allowable losses:

• Offset Capital Gains: Crypto losses first reduce any capital gains from crypto or other capital assets.
• Deduct Against Ordinary Income: If total capital losses exceed gains, you can deduct up to $3,000 per year ($1,500 if married filing separately) against ordinary income.
• Carry Forward Excess Losses: Unused losses beyond the annual limit can be carried forward indefinitely to offset future gains.

To report crypto losses, file Form 8949 to detail each transaction and transfer the totals to Schedule D of your tax return.

Crypto Tax Tip: Make sure to maintain accurate records of each trade, including purchase dates, sale dates, amounts, and wallet addresses.

Cryptocurrency is taxed based on the type of transaction:

• Short-Term Capital Gains (held for one year or less) is taxed as ordinary income at rates ranging from 10% to 37%, depending on your tax bracket.
• Long-Term Capital Gains (held for more than one year) is taxed at preferential rates of 0%, 15%, or 20%, depending on your income.
• Crypto Received as Income (such as from mining, staking, or payments) is taxed at standard ordinary income tax rates (10%-37%).

Your exact tax rate depends on your total taxable income and filing status.Crypto Tax Tip: Crypto is taxed only when a taxable event occurs, such as selling, trading, or earning it. Simply buying and holding is not taxable.

Capital gains tax applies when you sell, trade, or spend cryptocurrency at a profit. The tax treatment depends on how long you’ve held the crypto before disposing of it.

• Short-term capital gains apply if you held the cryptocurrency for one year or less. These gains are taxed as ordinary income, with rates ranging from 10% to 37%, depending on your tax bracket.
• Long-term capital gains apply if you held the cryptocurrency for more than one year. These are taxed at preferential rates of 0%, 15%, or 20%, based on your income level.

Your taxable gain is the difference between the sale price and your original purchase price (known as the cost basis). This applies whether you sell crypto for cash, use it to buy goods or services, or trade it for another cryptocurrency; for example, exchanging Bitcoin for Ethereum is a taxable event.

If you sell crypto at a loss, that capital loss can offset your capital gains. If your losses exceed your gains, you can deduct up to $3,000 per year against your ordinary income, and carry over any remaining losses to future years.

Crypto Tax Tip: Keep in mind that simply holding cryptocurrency without selling or using it does not trigger a tax – you only owe capital gains tax when a taxable event occurs.

In the U.S., the IRS requires several tax forms to report cryptocurrency activity, depending on how you used the crypto. Here’s a breakdown:

1. Form 8949: Reports capital gains and losses from crypto sales, trades, or disposals.
2. Schedule D (Form 1040): Summarizes total capital gains and losses.
3. The basic tax return, Form 1040: Includes a mandatory question about cryptocurrency transactions.
4. Schedule 1 (Form 1040): Reports crypto income from staking, airdrops, or payments if received as a hobby.
5. Schedule C (Form 1040): Reports crypto mining or self-employment income if earned as a business.
6. Form 1099s: Issued by crypto exchanges to report your transactions or income, but you’re still responsible for accurately reporting gains, losses, and cost basis.

Yes, many cryptocurrency exchanges report certain transaction information directly to the IRS. Because the IRS receives data about your crypto activity from these exchanges, it’s crucial that you report all your crypto transactions accurately and completely on your tax return to avoid discrepancies or tax audits.

Currently, most exchanges issue tax forms such as Form 1099-MISC or Form 1099-B. However, these forms often lack important details like your cost basis or may not capture all taxable events, which can make filing your taxes accurately more challenging.

Some of the most popular crypto exchanges that report user activity to the IRS include:

• Coinbase
• Crypto.com
• Binance US
• Kraken
• Gemini
• Bitstamp
• Robinhood
• Cash App
• PayPal

If you trade or transact on any of these platforms, it’s important to keep detailed records beyond what the exchange provides to ensure your tax filings are complete and accurate.

U.S. crypto tax laws are primarily based on IRS Notice 2014-21, which classifies cryptocurrency as property, not currency. As a result, most crypto transactions are subject to capital gains tax when the asset is sold, traded, or used to make purchases. In addition, cryptocurrency earned through mining, staking, or as payment for services is treated as ordinary income under IRC Section 61.

Key regulations include:

• Capital Gains Tax – Short-term (held <1 year) is taxed at ordinary income rates; long-term (held >1 year) is taxed at reduced rates.
• Income Tax – Crypto received as payment, mining/staking rewards, or airdrops is taxed as ordinary income, based on the asset’s fair market value at the time of receipt.
• Reporting Requirements – All taxable crypto transactions must be reported on your tax return. Beginning in 2025 (for the 2024 tax year), crypto brokers are required to issue Form 1099-DA to report digital asset sales to the IRS.
• Penalties – Failure to report crypto transactions can lead to IRS tax audits, fines, and legal consequences.

Proper record-keeping – including acquisition dates, sale dates, cost basis, and transaction details – is essential for full tax compliance.

TaxLawyer.com specializes in cryptocurrency tax matters, offering expert legal support to help you stay compliant with IRS regulations. Our knowledgeable crypto tax attorneys assist with crypto tax reporting, dispute resolution, and penalty mitigation.

We proudly serve tax clients across multiple states – check our service locations below to see if we’re available in your area:

Need help with your crypto taxes? Contact our top US crypto tax lawyers today for a confidential tax consultation and take the first step toward peace of mind and IRS compliance.