Please double check any information you’re seeing on message boards with a trusted tax source or provider.
Tax season is upon us, and we urge you to be cautious when it comes to information about your crypto transactions. First and foremost, please double check any information you’re seeing on message boards with a trusted tax source or provider. It’s very important to remember that any cryptocurrency or other digital assets you own might be taxed differently than ordinary income.
Self-employed taxpayers who earn less than $600 might not receive a Form 1099-MISC from their client, but they technically still need to report this income on their tax return, which places the burden of reporting on the taxpayer.
Do I have to pay taxes on crypto?
The short answer is yes.
The more detailed response is still yes; you have to report and potentially pay taxes on any crypto transaction that results in a taxable event with gains or losses.
While not every crypto transaction is a taxable event, many are.
Below, we’ll describe how crypto is taxed and what constitutes a taxable event. Then we’ll provide a number of our resources to help you navigate this tax season.
How is crypto taxed?
The IRS classifies digital assets as property for tax purposes.
As property, cryptocurrency is treated as a capital asset. Taxes on capital assets are pretty straight forward.
When you dispose of a capital asset through a sale for fiat currency or exchange it for other property or for services, you take the amount received for that transaction and reduce it by the amount you paid to acquire the asset—your original purchase price is known as cost basis.
If the proceeds of a crypto transaction exceed the cost, you have a capital gain. Likewise, if the inverse is true, you have a capital loss.
If you hold the asset for under 12 months, it will be treated as a short-term capital gain; if you hold the asset for over 12 months, it will be treated as a long-term capital gain.
What crypto transactions are taxable?
The following crypto activities are taxable events:
- Selling crypto for cash
- Trading one type of crypto for another
- Using crypto as payment
- Mining or staking crypto
- Receiving airdropped tokens
- Getting paid in crypto
When you sell, trade, or use crypto as a form of payment, you dispose of cryptocurrency; that disposal will result in gain or loss depending on your cost basis in the units disposed of and the value of the cryptocurrency at the time of disposal. Regardless of whether you had a gain or loss, these transactions need to be reported on your tax return on Form 8949.
When you receive cryptocurrency from mining, staking, airdrops, or a payment for goods or services, you have income that needs to be reported on your tax return. The amount of income you report establishes your cost basis—the original value or purchase price of each asset used for tax purposes.
What crypto transactions aren’t taxable events?
Not every crypto transaction is taxable.
The following activities aren’t considered taxable events:
- Buying cryptocurrency with fiat currency like USD
- Transferring units of a particular cryptocurrency between wallets or accounts you control
- Gifting cryptocurrency excluding large gifts that could trigger other tax obligations
- Donating cryptocurrency which is tax deductible
Other Taxbit resources
For more in depth information on crypto taxes, please explore all our resources:
- How to Report Cryptocurrency on Taxes
- Cryptocurrency Tax Reporting, Clarified: What To Include on Your Tax Return
- Understanding Form 8949, the Cryptocurrency Tax Form
- Understanding the Cryptocurrency Tax Rate
- What Are the Taxes on Cryptocurrency Gains?
- How to Report Crypto Losses
- Crypto Tax Loss Harvesting: A Complete Guide
- Proper Cryptocurrency Cost Basis Assignment Methods
- IRS Guidance On Cryptocurrency Mining Taxes
- A Quick Guide to the Wash Sale Rule and Cryptocurrency
How Taxbit can help
Keeping up with all the paperwork and reporting regulations for digital asset transactions can be laborious and time-consuming. The more complex your crypto portfolio becomes, the more complicated your tax liabilities can get.
That’s why Taxbit is here. Our software helps track your crypto transactions and fills out your tax forms automatically.
Ready to try out the updates for yourself? Create an account or login to start.
