- How the IRS Treats Cryptocurrency
- Reporting Cryptocurrency on Federal Taxes
- Common Cryptocurrency Tax Mistakes to Avoid
- Tax-Saving Strategies for Crypto Investors
- Cryptocurrency Federal Tax FAQ
- Do I Owe Taxes If I Didn’t Sell Crypto?
- How Is Crypto Mining Taxed?
- What If I Used Crypto to Buy Something?
- Can the IRS Track My Crypto?
How the IRS Treats Cryptocurrency
The IRS classifies cryptocurrency as property, not currency, for federal tax purposes. This means every transaction involving crypto (buying, selling, trading, or using it to pay for goods) may trigger taxable events. Key taxable activities include:
- Selling crypto for fiat currency (e.g., USD)
- Trading one cryptocurrency for another
- Receiving crypto as payment for services
- Earning crypto via mining, staking, or interest
- Receiving airdrops or hard forks
Reporting Cryptocurrency on Federal Taxes
Follow these steps to report crypto transactions accurately:
- Calculate Gains/Losses: Track cost basis (purchase price + fees) and sale price for each transaction.
- File Form 8949: Report capital gains/losses from crypto sales or trades.
- Transfer to Schedule D: Summarize totals from Form 8949 on Schedule D.
- Report Income: Include mined/staked crypto or payments as income on Schedule 1 (Form 1040).
Common Cryptocurrency Tax Mistakes to Avoid
- Ignoring small transactions or “forgotten” wallets
- Misreporting cost basis (leading to overpaying taxes)
- Failing to report crypto earned from DeFi or NFTs
- Assuming losses offset gains dollar-for-dollar (only $3,000/year applies)
Tax-Saving Strategies for Crypto Investors
- Hold for Long-Term Gains: Assets held over 1 year qualify for 0-20% tax rates vs. short-term (up to 37%).
- Tax-Loss Harvesting: Sell underperforming assets to offset gains.
- Donate Crypto: Avoid capital gains tax by donating appreciated crypto to charity.
Cryptocurrency Federal Tax FAQ
Do I Owe Taxes If I Didn’t Sell Crypto?
Yes, if you traded crypto, earned interest, or received it as income. Simply holding isn’t taxable.
How Is Crypto Mining Taxed?
Mined crypto is taxed as ordinary income at its fair market value when received. Selling later triggers capital gains.
What If I Used Crypto to Buy Something?
Using crypto for purchases is treated as a sale, so you’ll owe taxes on any gains since acquisition.
Can the IRS Track My Crypto?
Yes. Exchanges like Coinbase issue Form 1099-K, and blockchain analysis tools help the IRS identify unreported transactions.
Note: This guide is informational. Consult a tax professional for personalized advice.
