Cryptocurrency Tax Guide: What Every Investor Needs to Know
Studies suggest that between 55% and 95% of cryptocurrency holders globally fail to properly report their crypto transactions. In one notable study, 88% of crypto users in a major developed economy didn't report taxable crypto income at all.
Meanwhile, the IRS collected $235 million in unpaid crypto taxes in 2024 alone—and enforcement is only increasing. With new reporting requirements taking effect in 2025 and 2026, the era of flying under the radar with crypto is ending.
Whether you've been trading Bitcoin for years or just made your first purchase, understanding how cryptocurrency taxes work is essential. This guide covers everything you need to know about reporting your crypto transactions correctly and avoiding costly mistakes.
How the IRS Treats Cryptocurrency
The fundamental principle you need to understand: the IRS treats cryptocurrency as property, not currency. This means crypto transactions are subject to capital gains tax, similar to stocks or real estate.
This classification has significant implications:
Gains are taxable. When you sell or exchange cryptocurrency for more than you paid, you owe taxes on the profit.
Losses are deductible. If you sell crypto for less than your cost basis, you can use those losses to offset other gains—or up to $3,000 of ordinary income per year, with excess losses carrying forward indefinitely.
Every transaction matters. Unlike traditional currencies, where simply spending money isn't a taxable event, using crypto to buy goods or services triggers a capital gains calculation.
What Crypto Transactions Are Taxable?
Understanding which transactions create tax obligations is the first step to staying compliant.
Taxable Events
Selling crypto for fiat currency (USD, EUR, etc.): Any sale of cryptocurrency for traditional money is taxable. You'll owe capital gains tax on the difference between your sale price and cost basis.
Trading one cryptocurrency for another: Swapping BTC for ETH? That's a taxable event. The IRS treats it as selling the first crypto and buying the second—meaning you owe taxes on any gain from the "sale."
Using crypto to purchase goods or services: Bought coffee with Bitcoin? That's technically a disposal of property. You'll need to calculate gains or losses based on the crypto's fair market value at the time of purchase.
Receiving crypto as payment: If you receive cryptocurrency for work or services, it's taxed as ordinary income based on the fair market value when you received it.
Mining income: Crypto earned through mining is taxable as ordinary income at the time you receive it, based on fair market value.
Staking rewards: Similar to mining, staking rewards are taxed as income when received.
Airdrops: Free tokens received through airdrops are taxable as ordinary income at their fair market value when you gain control of them.
DeFi yields and interest: Any crypto earned through DeFi protocols, lending platforms, or interest-bearing accounts counts as taxable income.
Non-Taxable Events
Buying crypto with fiat currency: Simply purchasing cryptocurrency doesn't trigger taxes—only selling or exchanging it does.
Transferring between your own wallets: Moving crypto from one wallet to another that you own isn't taxable (though you should keep records to prove ownership).
Gifting small amounts: Gifts under the annual gift tax exclusion ($18,000 in 2024) generally aren't taxable events for the giver.
Holding crypto: There's no tax on unrealized gains. You only owe taxes when you sell, trade, or otherwise dispose of your crypto.
Understanding Crypto Tax Rates
The tax rate you pay depends on how long you held the cryptocurrency and whether the transaction generates capital gains or ordinary income.
Capital Gains Tax Rates
Short-term capital gains (crypto held one year or less): Taxed as ordinary income, with rates up to 37% depending on your income bracket.
Long-term capital gains (crypto held more than one year): Taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income.
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,026 - $518,900 | Over $518,900 |
| Married Filing Jointly | Up to $94,050 | $94,051 - $583,750 | Over $583,750 |
NFTs classified as collectibles: If your NFT is considered a collectible, gains may be taxed at up to 28%.
Ordinary Income Tax Rates
Crypto received as payment, mining income, staking rewards, and airdrops are all taxed as ordinary income. Your rate depends on your total taxable income and can range from 10% to 37%.
New Reporting Requirements for 2025-2026
The cryptocurrency tax landscape is changing significantly. Here's what's new:
Form 1099-DA
Starting in 2025, cryptocurrency exchanges and brokers must report customer transactions to the IRS using a new Form 1099-DA (Digital Asset Proceeds From Broker Transactions).
2025: Brokers must report gross proceeds from sales.
2026: Brokers must also report cost basis information for certain assets.
This means the IRS will have detailed records of your crypto transactions—making it much harder to underreport or fail to report.
Who Must Report
The new requirements apply to:
- Custodial digital asset trading platforms
- Digital asset hosted wallet providers
- Crypto kiosks (ATMs)
- Certain digital asset payment processors
Important note: Decentralized exchanges (DEXs) and non-custodial platforms are currently exempt from these broker reporting requirements. However, you're still legally required to report all transactions, regardless of whether the exchange reports them.
Cost Basis Changes
The IRS is eliminating the "universal wallet method" that treated similar assets across accounts as one pool. Starting in 2025, you must calculate cost basis separately for each wallet or account.
This change makes detailed record-keeping more important than ever.
Transitional Relief
For 2025 transactions, the IRS is providing some relief:
- No penalties for good-faith efforts to file Form 1099-DA correctly
- No backup withholding required on digital asset sales in 2025-2026
- Certain transactions (wrapping/unwrapping, liquidity providing, staking) have delayed reporting requirements
How to Report Crypto on Your Taxes
Required Forms
Form 8949: Used to report individual capital gains and losses from cryptocurrency sales and exchanges.
Schedule D (Form 1040): Summarizes your total capital gains and losses from Form 8949.
Schedule 1 or Schedule C (Form 1040): Used to report crypto received as income (mining, staking, payments, etc.).
The Crypto Question on Form 1040
Since 2019, the IRS has included a direct question about virtual currency on Form 1040. In 2024, the question asks: "At any time during the tax year, did you receive, sell, exchange, or otherwise dispose of any financial interest in any digital asset?"
You must answer this question accurately. Answering "no" when you should answer "yes" is considered a false statement on your tax return.
Filing Deadlines
- April 15: Standard deadline for filing individual tax returns
- October 15: Extended deadline if you file for an extension
Remember: An extension to file is not an extension to pay. If you owe taxes, you'll incur interest and penalties on late payments.
10 Common Crypto Tax Mistakes to Avoid
1. Not Reporting Crypto-to-Crypto Trades
Many investors don't realize that swapping one cryptocurrency for another is taxable. Every trade triggers a gain or loss calculation.
2. Assuming No 1099 Means No Taxes
Just because you didn't receive a tax form doesn't mean you don't owe taxes. The IRS expects you to report all taxable transactions, regardless of whether you receive documentation.
3. Cost Basis Errors
Accurately calculating your cost basis—the original purchase price plus fees—is critical. Guessing or using averages can lead to significant errors and potential penalties.
4. Forgetting About Staking and Mining Income
These aren't just capital gains events—they're ordinary income, taxable at the fair market value when received. Many investors overlook this entirely.
5. Not Tracking Transaction Fees
Transaction fees (gas fees, exchange fees) can be added to your cost basis or subtracted from sale proceeds, potentially reducing your tax liability. Keep records of all fees.
6. Ignoring Airdrops and Hard Forks
Free tokens are still taxable. Airdrops and hard fork proceeds are taxed as ordinary income at their market value when you receive them.
7. Poor Record-Keeping
With the new wallet-by-wallet cost basis rules, detailed transaction records are essential. Track every purchase, sale, trade, and transfer.
8. Not Reporting Losses
Crypto losses can offset gains and reduce your tax bill. Don't leave money on the table by failing to report losing positions you've sold.
9. Using Foreign Exchanges Without FBAR Filing
If you hold crypto on foreign exchanges and the aggregate value exceeds $10,000 at any point during the year, you may need to file an FBAR (Foreign Bank Account Report).
10. Thinking You Won't Get Caught
The IRS has sophisticated blockchain analysis tools and partnerships with major exchanges. With 65% of US crypto investors now using automated tax-reporting tools and new 1099-DA requirements taking effect, the chances of detection are higher than ever.
Tax-Loss Harvesting with Cryptocurrency
One advantage crypto has over traditional securities: the wash sale rule doesn't currently apply. This means you can sell cryptocurrency at a loss, immediately repurchase the same asset, and still claim the tax loss.
However, be aware that this could change—there have been proposals to extend wash sale rules to cryptocurrency.
How it works:
- Identify crypto positions with unrealized losses
- Sell those positions before year-end
- Use the losses to offset capital gains or up to $3,000 of ordinary income
- Repurchase the same crypto if you still want exposure
- Carry forward any excess losses to future years
Keeping Accurate Records
Good record-keeping is your best defense against tax problems. For each transaction, you should track:
- Date of acquisition
- Date of disposition
- Cost basis (purchase price plus fees)
- Sale price (minus fees)
- Fair market value at time of receipt (for income events)
- The wallet or exchange involved
- The type of transaction
Most crypto tax software can pull transaction history directly from exchanges and wallets, making this process easier. However, you should verify the accuracy of automated imports, especially for complex transactions like DeFi activities.
Stay Ahead of Your Crypto Taxes
Managing cryptocurrency taxes requires diligent record-keeping and a clear understanding of what's taxable. With new reporting requirements making IRS oversight more comprehensive, now is the time to get your crypto tax strategy in order.
Beancount.io provides plain-text accounting that gives you complete transparency over all your financial transactions—including cryptocurrency. Track your cost basis, document gains and losses, and maintain the detailed records you need for accurate tax reporting. Get started for free and take control of your crypto finances.
