Cryptocurrency Taxes: The Complete 2025-2026 Guide for Investors and Business Owners
With roughly 55 million Americans now owning cryptocurrency—about 21% of the adult population—understanding crypto taxes has never been more important. Yet many investors remain confused about their obligations, and the IRS has made it clear that digital assets are a top enforcement priority.
Whether you're holding Bitcoin as an investment, accepting crypto payments for your business, or earning rewards through staking, this guide breaks down everything you need to know about cryptocurrency taxes.
How the IRS Classifies Cryptocurrency
The first thing every crypto investor needs to understand: the IRS treats cryptocurrency as property, not currency. This classification has significant tax implications.
Just like stocks, real estate, or other investments, when you sell, trade, or spend cryptocurrency, you may trigger a taxable event. The gain or loss is calculated based on the difference between what you paid for the crypto (your cost basis) and what you received when you disposed of it.
This means even swapping one cryptocurrency for another—like trading Bitcoin for Ethereum—creates a taxable event. Many investors mistakenly believe they only owe taxes when they convert crypto to dollars, but that's not the case.
Taxable vs. Non-Taxable Crypto Transactions
Understanding which transactions trigger taxes can save you from costly mistakes.
Taxable Events
The following activities create tax obligations:
- Selling crypto for fiat currency (USD, EUR, etc.)
- Trading one cryptocurrency for another (BTC to ETH, for example)
- Spending crypto on goods or services
- Receiving crypto as payment for work (taxed as ordinary income)
- Earning staking or mining rewards (taxed as ordinary income when received)
- Receiving airdrops (taxed as ordinary income at fair market value)
Non-Taxable Events
These transactions generally don't trigger immediate tax liability:
- Buying crypto with fiat currency
- Transferring crypto between your own wallets
- Gifting crypto (under annual gift exclusion limits)
- Donating crypto to qualified charities
- Simply holding crypto (no tax until you dispose of it)
Capital Gains Tax Rates for Cryptocurrency
When you sell crypto for more than you paid, you owe capital gains tax. The rate depends on how long you held the asset.
Short-Term Capital Gains
If you held the cryptocurrency for one year or less before selling, your gains are taxed as ordinary income. For 2025, these rates range from 10% to 37%, depending on your total taxable income.
Long-Term Capital Gains
Hold your crypto for more than one year before selling, and you'll qualify for preferential long-term rates:
- 0% if your taxable income is $48,350 or less (single filers) or $96,700 or less (married filing jointly)
- 15% for income between $48,351 and $533,400 (single filers)
- 20% for income above $533,400 (single filers)
Higher-income taxpayers may also owe an additional 3.8% Net Investment Income Tax.
Capital Losses Can Offset Gains
If you sell crypto at a loss, you can use that loss to offset capital gains from other investments. If your losses exceed your gains, you can deduct up to $3,000 against ordinary income each year, with remaining losses carrying forward to future years.
Special Tax Rules for Staking, Mining, and Airdrops
These earning methods have their own tax implications that catch many investors off guard.
Staking Rewards
When you earn rewards from staking cryptocurrency, the IRS considers this taxable income at the moment you receive it—not when you sell. You'll report the fair market value of the tokens when they hit your wallet as ordinary income.
If you later sell those staking rewards, you'll also owe capital gains tax on any appreciation. The IRS may even consider consistent staking income as self-employment income, which would require filing Schedule C and paying self-employment taxes.
Mining Income
Similar to staking, crypto earned through mining is taxed as ordinary income when you receive it. For individual miners, this is typically reported on Schedule 1. If mining is your business, you'll use Schedule C and may deduct expenses like electricity and equipment.
Airdrops
Free tokens from airdrops aren't actually free from a tax perspective. The fair market value of airdropped tokens at the time you receive them is taxable as ordinary income—even if you never asked for them.
When you later sell airdropped tokens, you'll owe capital gains tax on any difference between your cost basis (the value when received) and your sale price.
NFT Tax Considerations
Non-fungible tokens have unique tax treatment that investors should understand.
Creating and selling NFTs as an artist or creator typically generates self-employment income. For collectors, buying NFTs isn't taxable, but selling them triggers capital gains or losses.
Here's where NFTs get complicated: some NFTs may be classified as "collectibles" under a look-through analysis of the underlying asset. Digital art NFTs, for example, could be treated as collectibles with a maximum long-term capital gains rate of 28%—higher than the standard 20% maximum.
DeFi Tax Complexities
Decentralized finance activities present some of the most challenging tax situations.
Token Swaps
Every swap on a decentralized exchange is a taxable event. Trading ETH for USDC on Uniswap? You'll need to calculate gains or losses based on fair market values at the time of the transaction.
Liquidity Pools
Providing liquidity involves complex tax implications that the IRS hasn't fully addressed. When you deposit tokens into a liquidity pool, you receive LP tokens in return. Many practitioners treat this as a taxable swap, though guidance remains unclear.
Gas Fees
Good news: gas fees can often be added to your cost basis or deducted from proceeds, reducing your taxable gain. Keep detailed records of all transaction fees.
New IRS Reporting Requirements for 2025-2026
The IRS is dramatically increasing its crypto oversight with new reporting rules.
Form 1099-DA
Beginning with 2025 transactions, crypto brokers must report sales and exchanges to the IRS using the new Form 1099-DA. This means the IRS will have detailed records of your activity on major exchanges.
Phased Implementation
- 2025: Brokers report gross proceeds from transactions
- 2026: Brokers must also report cost basis for covered assets
Wallet-by-Wallet Accounting
Starting in 2025, the IRS no longer allows the "universal wallet" method that treated similar assets across different accounts as one pool. You must now calculate cost basis separately for each wallet or account.
Transitional Relief
For 2025 transactions, the IRS won't penalize brokers making good-faith efforts to comply with the new 1099-DA requirements. However, this doesn't excuse individual taxpayers from accurate reporting.
Common Crypto Tax Mistakes to Avoid
These errors frequently trigger IRS scrutiny:
Failing to Report Crypto-to-Crypto Trades
Trading Bitcoin for Ethereum is a taxable event, period. Not reporting these swaps is one of the most common—and most easily caught—mistakes.
Ignoring Staking and Mining Income
These rewards are taxable when received, not when sold. Failing to report them as income can result in significant penalties.
Poor Record Keeping
With the new wallet-by-wallet accounting requirement, detailed records are essential. Track every transaction including date, amount, fair market value, and purpose.
Incorrect Cost Basis Calculations
Your cost basis includes the purchase price plus any fees. Guessing or using averages can lead to inaccurate reporting and penalties.
Mismatched Information
The IRS uses automated systems to compare your return against 1099 forms from exchanges. Discrepancies will flag your return for review.
How to Stay Compliant
Follow these best practices to avoid tax problems:
- Keep detailed records of every transaction across all wallets and platforms
- Use crypto tax software to track cost basis and generate required forms
- Report all taxable events including trades, staking rewards, and airdrops
- Understand your cost basis method (FIFO, LIFO, specific identification)
- File required forms including Schedule D, Form 8949, and Schedule 1 or C as applicable
- Consider professional help for complex situations like DeFi or large portfolios
Required Tax Forms for Cryptocurrency
Depending on your crypto activities, you may need to file:
- Form 8949: Reports individual sales and dispositions of capital assets
- Schedule D (Form 1040): Summarizes total capital gains and losses
- Schedule 1 (Form 1040): Reports additional income including mining and staking rewards
- Schedule C: Required if crypto activities constitute a business
The tax filing deadline remains April 15, with extensions available until October 15.
Keep Your Finances Organized from Day One
Cryptocurrency taxation is complex and evolving, but proper record-keeping makes compliance manageable. Whether you're a casual Bitcoin holder or an active DeFi participant, tracking every transaction from the start prevents tax-time headaches.
Beancount.io provides plain-text accounting that gives you complete transparency and control over all your financial records—including cryptocurrency transactions. With version-controlled ledgers and no vendor lock-in, you can maintain audit-ready records that grow with your portfolio. Get started for free and take control of your financial data.
