Is crypto taxed?
The IRS treats cryptocurrencies as property for tax purposes, which means: You pay taxes on cryptocurrency if you sell or use your crypto in a transaction, and it is worth more than it was when you purchased it. This is because you trigger capital gains or losses if its market value has changed.
Crypto is taxed like stocks and other types of property. When you realize a gain after selling or disposing of crypto, you're required to pay taxes on the amount of the gain. The tax rates for crypto gains are the same as capital gains taxes for stocks.
The total Capital Gains Tax you owe from trading crypto depends on how much you earn overall every year (i.e. your salary, or total self-employed income plus any other earnings). This number determines how much of your crypto profit is taxed at 10% or 20%. Our capital gains tax rates guide explains this in more detail.
The punishments the IRS can levy against crypto tax evaders are steep as both tax evasion and tax fraud are federal offenses. Depending on the severity, you can face up to 75% of the tax due, with a maximum of $100,000 in fines ($500,000 for corporations) or up to 5 years in prison.
Do you need to report taxes on Bitcoin you don't sell? If you buy Bitcoin, there's nothing to report until you sell. If you earned crypto through staking, a hard fork, an airdrop or via any method other than buying it, you'll likely need to report it, even if you haven't sold it.
Yes, according to the IRS, investors in the US have to report all of their gains and losses each tax year on the appropriate crypto tax forms, including Schedule D and Form 8949 on their Form 1040.
When you reinvest your cryptocurrency, you are essentially selling one type of crypto and purchasing another. This is considered a taxable event, even if you do not cash out to fiat currency.
According to IRS Notice 2014–21, the IRS considers cryptocurrency to be property, and capital gains and losses need to be reported on Schedule D and Form 8949 if necessary.
Giving and receiving a cryptocurrency gift is not subject to tax in most situations. If you give a cryptocurrency gift(s) worth more than $17,000 during the tax year, you may have to fill out a gift tax return.
Arizona, Florida, Wyoming, and Texas are considered crypto tax friendly states due to their favorable tax policies, exemptions, and incentives for crypto businesses, while states like California, Hawaii, and New York have high state taxes and regulations that may be less favorable for individuals and the crypto ...
Can you cash out crypto?
One of the easiest ways to cash out your cryptocurrency or Bitcoin is to use a centralized exchange such as Coinbase. Coinbase has an easy-to-use “buy/sell” button and you can choose which cryptocurrency you want to sell and the amount.
You may have to report transactions with digital assets such as cryptocurrency and non-fungible tokens (NFTs) on your tax return. Income from digital assets is taxable.
You pay taxes on cryptocurrency if you sell or use your crypto in a transaction, and it is worth more than it was when you purchased it. This is because you trigger capital gains or losses if its market value has changed. If you receive crypto as payment for business purposes, it is taxed as business income.
When you dispose of your crypto by trading, exchanging, or spending it, you'll need to report these transactions on Form 1040, Schedule D. You may also need to report this activity on Form 8949 in the event information reported on Forms 1099-B needs to be reconciled with the amounts reported on your Schedule D.
Short-term capital gains tax for crypto
If you own cryptocurrency for one year or less before selling, you'll pay the short-term capital gains tax. Short-term capital gains taxes are higher than long-term capital gains taxes.
There is no way to legally avoid taxes when cashing out cryptocurrency. However, strategies like tax-loss harvesting can help you reduce your tax bill legally.
Special Rules for Victims of Crypto Theft & Scams
Now, victims of theft or scams can only claim a loss if it is attributed to a federally declared disaster. For crypto theft not related to a declared disaster, losses can no longer be deducted. These special disaster loss rules are in place from 2018 through 2025.
Summary: If there is no market for your rug-pulled or scammed crypto assets, you can write off unrealized losses. If there is a market for your crypto-assets, you can dispose of your assets and claim an investment loss.
Attempting to hide cryptocurrency from the IRS is illegal and can result in serious penalties, including fines and imprisonment. Exchanges such as Coinbase, Binance.US, and Crypto.com report customer data to the IRS, while many international exchanges like KuCoin, OKX, and Bitget might not.
Converting one crypto to another is a taxable event, which is clearly outlined in the IRS's latest guidance on the matter. According to the IRS, this transaction is basically you selling the first currency to then buy another.
What are the IRS rules for cryptocurrency?
If an employee was paid with digital assets, they must report the value of assets received as wages. Similarly, if they worked as an independent contractor and were paid with digital assets, they must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship).
You may be selected for a cryptocurrency tax audit if you're randomly selected through the IRS's statistical formula or the IRS has reason to believe that you are underreporting your income.
The IRS generally treats gains on cryptocurrency the same way it treats any kind of capital gain. That is, you'll pay ordinary tax rates on short-term capital gains (up to 37 percent in 2023 and 2024, depending on your income) for assets held less than a year.
Giving a crypto gift
Gifts under $15,000 in crypto: No tax implications for gifter. Gifts above $15,000: Gifter must report gift to the IRS, using Form 709. Gifts above $15,000 count toward to a lifetime gift exemption of $11.7 million ($12.06 million in 2022)
Coinbase reports relevant tax-related information to the IRS to comply with regulations. Specifically, it submits Forms 1099-MISC to the IRS for US traders who earned more than $600 in crypto rewards or staking during a given year.
