Cryptocurrency has been dominating the news for a while now. Digital currencies like Bitcoin, Litecoin, Dogecoin, and Ethereum have been gaining steam and legitimacy as companies are now accepting and even investing in them.
Digital currency wallets such as Coinbase are becoming more popular, making it easier than ever to invest in cryptocurrency. From 2010 to 2021, thevalue of one Bitcoinjumped from $.08 per coin to over $60,000 per coin (though its price fluctuates regularly). But despite its high volatility, many people are deciding to hop on the crypto investment bandwagon in hopes of turning a profit.
If you bought any cryptocurrency lately, you might be wondering how to report it on your taxes. You’re not alone — reporting crypto on your taxes is new for everyone, so it makes sense if it sounds confusing.
Don’t worry! We’re here to walk you through how to report cryptocurrency on your taxes so you can rest easy knowing your return is accurate and you’re not at risk of being audited or owing more money.
Reporting crypto on your tax form
Any time you make or lose money on your investments, you need to report it on your taxes using Schedule D.
In the past, many people who held blockchain technology and cryptocurrency may not have reported it. But ever since 2020, the IRS has added a question about crypto to page one ofForm 1040 tax reporting purposes. Under the section where you put your name, address, and other personal information, it says, “At any time during the tax year, did you receive, sell, send, exchange, or otherwise dispose of any financial interest in any virtual currency?”
You only need to check “Yes” if you made any crypto transactions during the tax year; if you just purchased crypto with real currency or held cryptocurrency but didn’t buy or sell it, you can mark “No.”
New for tax year 2021: The IRS is requiring all taxpayers to answer “Yes” or “No” to the virtual currency question in order to e-file their return this year, so don’t skip this question!
Crypto tax on capital gains
If you invested in cryptocurrency by buying and selling it, you would report all your capital gains and losses on your taxes using Schedule D, an attachment for Form 1040.
Remember that if you made money on crypto exchanges but held it for one year or less, then it’s considered a short-term capital gain and it would be taxed as income. Your federal tax rate would range from 10-37 percent depending on your tax bracket.
If you held and sold crypto for more than one year, then it would be taxed as a long-term capital gain. Those capital gains tax rates are 0, 15, or 20 percent depending on your taxable income that year.
If you happen to lose money on your investment, you can use it against your other gains and income. There is a $3,000 yearly limit, but you can carry the rest over to subsequent years when you file.
This is a NET capital loss of the $3,000 limit. For example, if you had $10,000 in other capital gains and $15,000 in losses from crypto, you’d actually be able to claim $13,000 in capital losses on your return. By netting $10,000 of your loss against your capital gains, your remaining loss ends up being $5,000. You could deduct the yearly maximum of $3,000, and the remaining $2,000 would be carried forward for you to deduct next year.
If you sold any Bitcoin last year, we also have a handy Bitcoin tax calculator to help you estimate your cryptocurrency taxes.
Income and donations
Let’s say someone paid you with cryptocurrency for performing a job — you must report that for tax purposes as well. If you are paid as an employee, then you need to pay ordinary income taxes. If you are self-employed, you need to pay ordinary income taxes along with self-employment taxes. If you mine crypto, you’ll need to record it and pay any taxable income.
You may have donated your cryptocurrency to charity. As long as you gave your actual virtual currency to eligible charities and didn’t convert it to dollars, then you could potentially qualify for reduced tax liability.
For more information on reporting virtual currency, the IRS put outNotice 2014–21, which gives detailed information on all different scenarios with crypto and how you would report them on your tax return. You can also check out the official IRS webpage on virtual currency for more helpful publications.
FAQs
Report crypto disposals, capital gains and losses on: Form Schedule D (1040) and Form 8949. Report crypto income on: Form Schedule 1 (1040) or Form Schedule C (1040). You can do this with paper forms or through a tax app like TurboTax or TaxAct.
How do you answer IRS crypto question? ›
On your 2023 federal tax returns, you must answer "Yes" or "No" to a digital asset question: At any time during 2023, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?
How do you report cryptocurrency on taxes? ›
Any cryptocurrency capital gains, capital losses, and taxable income need to be reported on your tax return. You can report your capital gains and losses on Form 8949 and your income on Form 1040 Schedule 1 or Schedule C depending on your situation.
How is cryptocurrency reported to IRS? ›
For example, an investor who held a digital asset as a capital asset and sold, exchanged or transferred it during 2023 must use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss on the transaction and then report it on Schedule D (Form 1040), Capital Gains and Losses.
How much crypto do you have to make to report on taxes? ›
You owe taxes on any amount of profit or income, even $1. Crypto exchanges are required to report income of more than $600, but you still are required to pay taxes on smaller amounts. Do you need to report taxes on Bitcoin you don't sell? If you buy Bitcoin, there's nothing to report until you sell.
What triggers IRS audit crypto? ›
Crypto audit triggers include failure to accurately report transactions and income, large transactions or significant gains, inconsistencies or discrepancies in reporting, use of privacy-focused coins, and participation in offshore exchanges.
Does IRS track your crypto? ›
Yes, Bitcoin and other cryptocurrencies can be traced. Transactions are recorded on a public ledger, making them accessible to anyone, including government agencies. Centralized exchanges provide customer data, such as wallet addresses and personal information, to the IRS.
What happens if I don't report cryptocurrency on taxes? ›
US taxpayers must report any profits or losses from trading cryptocurrency and any income earned from activities like mining or staking on tax return forms, such as Form 1040 or 8949. Not reporting can result in fines and penalties as high as $100,000 or more severe consequences, including up to five years in prison.
Do you get a 1099-B for cryptocurrency? ›
Key Takeaways. Form 1099-B is issued by exchanges to help report capital gains and losses. At this time, most cryptocurrency exchanges don't send this form to customers. Starting in the 2025 tax year, all exchanges operating in the United States will be required to report capital gains and losses to the IRS.
How to fill out form 8949 for cryptocurrency? ›
How to fill out Form 8949 for cryptocurrency
- Export all cryptocurrency transactions. ...
- Collect information and calculate gain/loss. ...
- Categorize transactions into short-term and long-term disposals. ...
- Select the correct checkbox. ...
- Report your disposals on Form 8949. ...
- Report your net gain or loss on Schedule D.
The IRS likely already knows about your crypto investments. There are two kinds of tax evasion - evasion of assessment and evasion of payment. Evasion of assessment is willfully omitting or underreporting income. Evasion of payment is concealing funds or assets that could be used to pay a tax liability.
Do you have to report crypto if you lost money? ›
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.
Can you write off crypto losses? ›
Yes, you can write off crypto losses on taxes even if you have no gains. If your total capital losses exceed your total capital gains, US taxpayers can deduct the difference as a loss on your tax return, up to $3,000 per year ($1,500 if married filing separately).
Which crypto exchanges do not report to the IRS? ›
Certain cryptocurrency exchanges and apps do not report user transactions to the IRS. These include decentralized exchanges (DEXs) and peer-to-peer (P2P) platforms that do not have reporting obligations under US tax law.
Does crypto send a 1099? ›
Do I get a 1099 for crypto? Currently, most major exchanges issue 1099 forms to customers. Starting in the 2025 tax year, all crypto exchanges operating in the United States will be required to issue Form 1099-DA to report capital gains and losses from crypto.
Is sending crypto to another wallet taxable? ›
While moving crypto from one wallet to another is not taxable, relevant fees may be subject to tax.
What happens if you don t report crypto to IRS? ›
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 I have to report crypto to IRS? ›
You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.
Who can answer crypto questions? ›
Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, 1120 and 1120S must check one box answering either "Yes" or "No" to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.
How can I avoid IRS with crypto? ›
9 Ways to Legally Avoid Paying Crypto Taxes
- Buy Items on BitDials.
- Invest Using an IRA.
- Have a Long-Term Investment Horizon.
- Gift Crypto to Family Members.
- Relocate to a Different Country.
- Donate Crypto to Charity.
- Offset Gains with Appropriate Losses.
- Sell Crypto During Low-Income Periods.
