Crypto Taxes: The Complete Guide (2024) (2024)

Table of Contents
Do you pay taxes on cryptocurrency? How much is cryptocurrency taxed? How much tax do I pay on cryptocurrency? How do crypto tax brackets work? When do you owe taxes on your crypto? When do you owe capital gains tax on cryptocurrency? Example: When do you owe income tax on cryptocurrency? Tax-free cryptocurrency transactions Can the IRS track your cryptocurrency? What happens if you don’t report your crypto taxes? How do you lower your crypto taxes? 1. Hold your cryptocurrency 2. Tax-loss harvesting 3. Hold cryptocurrency in an IRA 4. Donate cryptocurrency When do you need to report your crypto taxes? What if you forgot to report your crypto taxes? How to calculate your cryptocurrency capital gains and losses What is proceeds? What is cost basis? Example: How to calculate your tax liability How to use cost basis methods Do cryptocurrency exchanges send tax forms? What is Form 1099-B? What is Form 1099-MISC? What is Form 1099-K? What is Form 1099-DA? Why reporting your crypto taxes can be difficult How do you report crypto on your taxes? How to report crypto capital gains How to report crypto income tax How is buying cryptocurrency taxed? Do I pay tax for holding cryptocurrency? How is transferring crypto between different wallets taxed? How is selling cryptocurrency taxed? Example: Do you pay taxes when spending crypto? How are crypto-to-crypto trades taxed? Example: How are crypto losses taxed? Example: How are crypto fees taxed? Example: How is mining cryptocurrency taxed? How is staking cryptocurrency taxed? Example: How are airdrops taxed? How are hard forks taxed? How are cryptocurrency soft forks taxed? How is crypto interest taxed? How are cryptocurrency loans taxed? How is margin and futures trading taxed? How are crypto gifts taxed? How are crypto donations taxed? How are stablecoins taxed? How is lost and stolen cryptocurrency taxed? How are exchange bankruptcies taxed? How do DeFi taxes work? How is adding and removing liquidity taxed? How do NFT taxes work? How are DAOs taxed? How do other countries handle crypto taxes? Why crypto exchanges can't provide accurate tax forms How to track cryptocurrency for tax purposes How cryptocurrency tax software can help How it works How to stay up-to-date on crypto tax news FAQs

Do you pay taxes on cryptocurrency?

Yes. In the United States, cryptocurrency is subject to capital gains tax (when you dispose of cryptocurrency) and income tax (when you earn cryptocurrency).

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How much is cryptocurrency taxed?

Your personal income tax bracket and the holding period of your crypto assets (short term vs. long term) will determine how much tax (and what % of tax) you pay on your crypto income. This will be different for each investor and can be affected by more traditional sources of income such as stocks, income from your job, and other investments.

How much tax do I pay on cryptocurrency?

If you earned cryptocurrency income or disposed of your crypto after less than 12 months of holding, you’ll pay tax between 10-37%.

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If you dispose of your cryptocurrency after 12 months of holding, you’ll pay tax between 0-20%.

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How do crypto tax brackets work?

Income earned in the U.S. (including crypto income) isn’t subject to a flat tax rate. Rather, taxpayers pay different tax rates on each individual portion of income as they progress through tax brackets. For example, if a taxpayer has $25,000 of ordinary income for the year, they will pay 10% on the first $11,000 and 12% on the next $14,000.

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When do you owe taxes on your crypto?

You incur a taxable event when you earn or dispose of cryptocurrency.

When do you owe capital gains tax on cryptocurrency?

When you dispose of cryptocurrency, you’ll recognize a capital gain or loss depending on how the price of your crypto has changed since you originally received it. Examples of disposals include selling your cryptocurrency, trading it for another crypto, and using crypto to buy goods and services.

Example:

Sean buys $3,000 of BTC.

Later, he sells his BTC for $3,300.

Sean incurs $300 of capital gain.

When do you owe income tax on cryptocurrency?

When you earn cryptocurrency, you’ll recognize income based on the fair market value of your crypto at the time of receipt. Examples of income include airdrop rewards, staking rewards, and mining rewards.

Tax-free cryptocurrency transactions

Not every cryptocurrency transaction is subject to tax! You do not trigger a taxable event when you:

  • Hold cryptocurrency
  • Buy cryptocurrency with fiat currency and hold it
  • Transfer crypto from one wallet you own to another wallet you own
  • Use cryptocurrency as collateral for a loan

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Can the IRS track your cryptocurrency?

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It’s often assumed that because cryptocurrency is anonymous, evading taxes is fairly easy. This is not true.

Major exchanges like Coinbase send 1099 forms to the IRS which contain your information and records of your crypto income.

The IRS can use the information that it receives from major exchanges to match ‘anonymous’ wallets to known individuals. In the past, the agency has worked with contractors like Chainalysis to analyze the blockchain and crack down on tax fraud.

In the future, the IRS will have even more information at its disposal to identify tax cheats. Due to the passage of the Build Back Better Act, all exchanges will be required to report 1099 forms with detailed records of capital gains and losses starting in 2026.

What happens if you don’t report your crypto taxes?

The IRS can enforce a number of penalties for tax fraud, including criminal prosecution, five years in prison, and a fine of up to $250,000.

Over the past several years, the IRS has aggressively cracked down on cryptocurrency tax compliance issues. It’s updated the main US income tax form (1040) to include a question that every US taxpayer must answer under penalty of perjury:

At any time during 2023, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?

As cryptocurrency adoption accelerates, it’s likely that we’ll see more cryptocurrency tax audits and tax prosecutions.

How do you lower your crypto taxes?

While there’s no way to evade your cryptocurrency taxes, the strategies below can help you legally reduce your crypto taxes!

1. Hold your cryptocurrency

Holding your cryptocurrency for the long-term comes with tax benefits! When you dispose of crypto held for longer than a year, you pay a lower tax rate on your capital gains.

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2. Tax-loss harvesting

Capital losses from cryptocurrency can offset an unlimited amount of capital gains and up to $3,000 of income for the year. Additional losses can be rolled forward into future tax years.

Learn more about how you can tax loss harvest with cryptocurrency here.

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3. Hold cryptocurrency in an IRA

If you’re planning on holding your cryptocurrency for the long-haul, a cryptocurrency IRA can be a great option. With a self-directed IRA, you can hold cryptocurrencies and dispose of them on a tax-free/tax-deferred basis once you’re near retirement age.

4. Donate cryptocurrency

Donating cryptocurrency is a great way to make a positive impact and claim tax benefits. Donating cryptocurrency is not subject to capital gains tax, and you claim a tax deduction based on the value of your donation!

When do you need to report your crypto taxes?

For the 2023 tax year, the deadline for American taxpayers is April 15, 2024. The deadline for American expatriates is June 15, 2024.

What if you forgot to report your crypto taxes?

If youʼre like many other crypto investors, thereʼs a strong chance that you werenʼt always aware of the fact that your crypto-related income needed to be reported on your taxes.

If you are in this situation, donʼt worry. You can amend a prior year's tax return to include your crypto-related income with IRS Form 1040X.

Itʼs always better to amend your return in good faith rather than waiting for the IRS to find you. While there is never a way to guarantee that someone won’t be audited after amending their taxes, paying your taxes before the IRS begins an investigation can go a long way to demonstrate that further inquiry is unlikely to find additional reporting errors.

For a detailed guide, check out our blog post on how to amend your tax return to include your crypto.

How to calculate your cryptocurrency capital gains and losses

To calculate your capital gains and losses from each of your crypto sells, trades, or disposals, simply apply the formula:

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What is proceeds?

Proceeds represents how much value you received in exchange for disposing of your crypto-asset. Typically, this will be the fair market value of your assets at the time of disposal minus the cost of relevant fees.

What is cost basis?

Cost basis represents how much money you put into purchasing your property (i.e. how much it cost you). Cost basis includes purchase price plus all other costs associated with purchasing your cryptocurrency (fees, etc).

From our examples above, itʼs easy to see this formula in action. If you buy 1 Litecoin for $250, your cost basis is $250 per Litecoin. If you sell or trade it when itʼs worth $400, your proceeds are $400.

Applying the formula:

$400 (Proceeds) - $250 (Cost Basis) = $150 Gain

Example: How to calculate your tax liability

Say you have the following cryptocurrency transaction history:

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With this transaction history, you first trigger a taxable event (and thus a capital gain/loss) when you trade 0.5 BTC for 14.5 ETH. To calculate the gain/loss, you need to subtract your cost basis of 0.5 BTC from your gross proceeds at the time of the trade.

The question here is, what is your cost basis in the 0.5 BTC that you traded for 14.5 ETH? After all, you have purchased 3 different bitcoins all at different prices prior to this trade.

To answer this, you have to determine which bitcoin you are disposing of in this scenario. To determine this, you’ll need to pick an accounting method!

How to use cost basis methods

If you’ve bought the same cryptocurrency at multiple price points, you may have trouble determining your cost basis. If you find yourself in this situation, you’ll need to use a cost basis method like FIFO, LIFO, or HIFO. These cost basis methods determine the ‘order’ in which your cryptocurrency gets disposed of.

Let’s walk through how these cost basis methods work.

FIFO: FIFO is first-in first-out. The first cryptocurrency you acquired is the first you dispose of.

LIFO: LIFO is last-in first-out. With this method, the last cryptocurrency you acquired is the first you dispose of. LIFO can help you save money on taxes in a period of rising prices.

HIFO: HIFO is highest-in first-out. With this method, the highest price cryptocurrency you acquire is the first you dispose of.

FIFO is considered the default method for most investors. If you choose a ‘specific identification’ method like LIFO or HIFO, you’ll need to specifically identify each individual unit of cryptocurrency.

You can learn more about how various accounting methods work to calculate your gains and losses for your crypto trades in this blog post: FIFO, LIFO, and HIFO for crypto trading.

Do cryptocurrency exchanges send tax forms?

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Cryptocurrency exchanges often send 1099 forms to users detailing capital gains and losses to users. This may include Form 1099-B, Form 1099-MISC, and Form 1099-K. In the future, exchanges may send Form 1099-DA — a soon-to-be-released form that the IRS is designing specifically for digital assets.

What is Form 1099-B?

Form 1099-B is a form specifically designed to report capital gains and losses from investment assets. Remember, your Form 1099-B may not be accurate if you transferred your cryptocurrency into or out of an exchange. In this case, your exchange may not have a record of your cost basis/proceeds and will not be able to accurately calculate your capital gains.

What is Form 1099-MISC?

Form 1099-MISC is a form designed to report ‘miscellaneous’ income — such as income from staking and airdrops. Most exchanges will send you this form if you’ve earned more than $600 in miscellaneous income during the tax year.

What is Form 1099-K?

Form 1099-K is a tax form designed for payment processors that was issued by cryptocurrency exchanges in the past. Form 1099-K shows the total transaction volume for transactions — which can make it appear as though the user has a significant unpaid tax liability (even when they have accurately reported their taxes). Many exchanges sent Form 1099-K in the past, but most have stopped sending this tax form due to the confusion they caused for both customers and tax authorities.

What is Form 1099-DA?

Form 1099-DA is a form designed specifically to report your gains and losses from digital assets. While it’s likely that all exchanges will be required to send Form 1099-DA starting in 2026, the form will still have trouble tracking wallet-to-wallet transfers. As a result, you’ll still be required to keep track of your capital gains and losses.

Why reporting your crypto taxes can be difficult

As you can see from the examples above, calculating your capital gains and losses from your crypto trading activity requires keeping track of your cost basis, fair market value, and USD gain or loss every time you dispose of a crypto (trade, sell, spend, etc).

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Without this information, you cannot accurately calculate your realized income or capital gains from your trading activity, and you won’t be able to accurately report them on your tax return.

Gathering and maintaining this information is extremely challenging for many cryptocurrency investors as most havenʼt been keeping detailed records of their investing activity. Tracking the cost basis and USD prices for every cryptocurrency across all exchanges, wallets, and protocols at any given time quickly turns into a difficult, if not impossible, spreadsheet exercise.

This is the reason why hundreds of thousands of crypto investors are turning to crypto tax software like CoinLedger to automate their crypto tax reporting. You can sign up for a free account here.

How do you report crypto on your taxes?

If youʼre like most cryptocurrency investors, you likely have only bought, sold, and traded crypto (i.e. capital gains investing activity) via a cryptocurrency exchange. This crypto income is considered capital gains income and is reported as such.

On the other hand, if you earned cryptocurrency—whether that's from a job, mining, staking or interest rewards—that earned income is generally treated as ordinary income and is reported as such.

We dive into the reporting for each of these income types below.

How to report crypto capital gains

Your capital gains and losses from your crypto trades get reported on IRS Form 8949.

Form 8949 is the tax form that is used to report the sales and disposals of capital assets, including cryptocurrency. Other capital assets include stocks and bonds.

To fill out Form 8949, list all of your cryptocurrency trades, sells, and disposals into the relevant column (pictured below) along with the date you acquired the crypto, the date your crypto was sold or traded, your gross proceeds, your cost basis, and your gain or loss for the trade.

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Once you have each trade listed, total them up and fill in your net capital gain or loss for the year at the bottom.

For a detailed walkthrough of Form 8949, check out this blog post: How To Report Cryptocurrency to the IRS.

How to report crypto income tax

Unfortunately, ordinary income doesn't fall nicely onto one tax form as we saw with capital gains and Form 8949.

The ordinary income you receive from mining, staking, interest accounts, or work compensation gets reported on different tax forms, depending on your specific situation.

Schedule 1 - If you earned crypto from airdrops, forks, or other crypto hobby income, it’s generally reported on Schedule 1 as other income. (Not subject to self-employment tax.) In most cases, this is the form you’ll use to report cryptocurrency income.

Schedule C - If you earned crypto while operating a business, like receiving payments for contract work, running a cryptocurrency mining operation, or operating a node, this is often treated as self-employment income and is reported on Schedule C. Schedule C also allows you to deduct business expenses such as electricity used for mining.

Schedule B - If you earned staking income or interest rewards from lending out your crypto, it’s generally reported on Schedule B.

To make things easier for investors, CoinLedger generates a complete income report that is included with your completed crypto tax reports. This report details the US Dollar value of all of your cryptocurrency income events that you received throughout the year: mining, staking, airdrops, and more. This income report can be used to complete your relevant ordinary income tax forms like Schedule 1, Schedule B, and Schedule C.

TAX FREE

How is buying cryptocurrency taxed?

Buying cryptocurrency with fiat currency is tax-free.

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However, you should keep detailed records of your cryptocurrency purchases for tax purposes. If you dispose of your cryptocurrency in the future, you’ll need to know your original cost for acquiring your crypto to calculate your total capital gain.

TAX FREE

Do I pay tax for holding cryptocurrency?

There’s no tax for simply holding cryptocurrency. You won’t be charged until you dispose of your existing cryptocurrency or earn new cryptocurrency.

TAX FREE

How is transferring crypto between different wallets taxed?

Transferring crypto between wallets that you own is tax-free. However, you may pay taxes on fees paid to transfer your crypto.

You should keep a detailed record of your cryptocurrency transfers so that you can calculate your capital gains and losses in a disposal event.

CAPITAL GAINS TAX

How is selling cryptocurrency taxed?

Selling cryptocurrency is a disposal event subject to capital gains tax. You’ll incur a capital gain or loss depending on how the price of your crypto changed since you originally received it.

Example:

Jordan buys BTC for $1,000.

Later, he sells BTC for $1,500.

Jordan incurs $500 of capital gain ($1,500 - $1,000).

CAPITAL GAINS TAX

Do you pay taxes when spending crypto?

When you spend cryptocurrency to purchase goods and services, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.

CAPITAL GAINS TAX

How are crypto-to-crypto trades taxed?

Trading your crypto for another cryptocurrency is considered a disposal event subject to capital gains tax. You’ll incur a capital gain or loss depending on how the price of the crypto you traded away has changed since you originally received it.

Example:

Jamie buys $1,000 of BTC.

The price of Jamie’s BTC rises to $1,200.

Jamie trades his BTC for ETH.

Jamie incurs $200 of capital gain ($1,200-$1,000).

TAX DEDUCTIBLE

How are crypto losses taxed?

Cryptocurrency losses can be used to offset 100% of your gains from cryptocurrency, stocks, and other assets and up to $3,000 of income for the year. Any additional losses can be rolled forward into future tax years.

Example:

Rachel buys $2,000 of SOL.

The price of Rachel’s SOL drops to $1,500.

Rachel sells her SOL.

Rachel has a capital loss of $500, which she can use to offset income!

TAX DEDUCTIBLE

How are crypto fees taxed?

Exchange fees and blockchain gas fees related to acquiring and disposing of your crypto can reduce your capital gains.

Fees related to acquiring your crypto can be added to your cost basis.

Meanwhile, fees related to disposing of your crypto can be subtracted from your gross proceeds.

Example:

Scott buys $300 of BTC and pays $10 of fees.

Scott’s cost basis in BTC is $310.

Later, Scott sells his BTC for $400.

Scott’s incurs a capital gain of $90 ($400 - $310).

Income Tax

Capital Gains Tax

How is mining cryptocurrency taxed?

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Cryptocurrency mining rewards are considered income based on the fair market value of your crypto at the time of receipt. When you dispose of your rewards, you’ll pay capital gains tax based on how the price of your crypto has changed since you originally received it.

If you’re mining cryptocurrency as a business, you can deduct relevant expenses such as the depreciation of your equipment and electricity.

If you’re mining cryptocurrency as a hobby, you are not allowed to deduct relevant expenses.

You can read more in our compete guide on how crypto mining is taxed.

Income Tax

Capital Gains Tax

How is staking cryptocurrency taxed?

Cryptocurrency staking rewards are considered income based on the fair market value of your crypto at the time of receipt.

When you dispose of your rewards, you’ll pay capital gains tax based on how the price of your crypto has changed since you originally received it.

Example:

Sara earns $200 of ETH from staking.

The price of her ETH rises to $250.

Sara sells her ETH.

Sara recognizes $200 of income and $50 of capital gain.

Income Tax

Capital Gains Tax

How are airdrops taxed?

Cryptocurrency received from an airdrop is taxed as income. This means that you are liable for income taxes on the USD value of the claimed airdrop.

When you dispose of airdrop rewards, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.

For more information, check out our guide to airdrop taxes.

Income Tax

Capital Gains Tax

How are hard forks taxed?

In a cryptocurrency hard fork, a blockchain splits into two and an entirely new cryptocurrency is created. If you receive units of this new cryptocurrency, you’ll recognize income based on the fair market value of your coins at the time of receipt.

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If you dispose of your forked cryptocurrency in the future, you’ll incur a capital gain or loss depending on how its price has changed since you originally received it.

TAX FREE

How are cryptocurrency soft forks taxed?

Sometimes, a cryptocurrency will need to rebrand or change its architecture for increased functionality. When this happens, the conversion from the old version of the token to the new version of the token is not a taxable event. Similar to a stock split or a company changing tickers on the stock market, the underlying cost basis will carry through into the new asset without triggering a taxable event.

Generally, if you haven’t received any new cryptocurrency as a result of a fork, there is no taxable event.

Income Tax

Capital Gains Tax

How is crypto interest taxed?

Currently, platforms like Gemini offer users interest rewards for holding select cryptocurrencies. Cryptocurrency interest is considered personal income and is taxed accordingly.

When you dispose of cryptocurrency interest rewards, you’ll recognize a capital gain or loss depending on how the price of your crypto changed since you originally received it.

Tax free

Capital Gains Tax

How are cryptocurrency loans taxed?

Today, investors can receive loans using cryptocurrency as collateral from centralized exchanges and decentralized protocols.

Generally, receiving a loan is not considered a taxable event.

However, some DeFi loan protocols use crypto-to-crypto swaps to facilitate loans. It’s possible that these swaps will be considered disposals subject to capital gains tax.

For more information, check out our guide to how cryptocurrency loans are taxed.

CAPITAL GAINS TAX

How is margin and futures trading taxed?

Cryptocurrency exchanges like BitMex and Binance.com have popularized the use of margin and futures trading. The IRS has not yet set forth explicit guidance on how these cryptocurrency transactions should be handled from a tax perspective, but it’s likely that any profits or losses from margin trading will be treated as capital gains and losses.

For more information, check out our guide to cryptocurrency margin trading taxes.

TAX FREE

How are crypto gifts taxed?

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If you are feeling generous, you can send a cryptocurrency gift to a friend or family member without having to worry about paying additional taxes.

Generally, cryptocurrency gifts are tax-free for all but the most generous gift-givers. Gift taxes are not imposed until the gift-giver has gifted away over $12.92 million dollars in their lifetime. Even then, the gift recipient will never have to pay taxes for merely receiving the gift.

However, if you send a gift or gifts with a fair market value above $17,000 to any individual in a year, you will need to file a gift tax return in addition to your traditional tax returns. This form is for informational purposes and does not mean you will be required to pay taxes on your gift.

For more information, check out our guide to crypto gift taxes.

TAX DEDUCTIBLE

How are crypto donations taxed?

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Crypto donations to registered charities come with multiple tax benefits! Not only are they not considered a taxable disposal of your crypto, you can also treat your donation as a tax deduction!

If you are claiming a deduction larger than $500, you will need to report this on Form 8283.

The amount of your donation that is tax-deductible depends on how long you have held the assets:

  • for crypto held for less than a year, you can deduct whichever is lower: the cryptocurrencyʼs fair market value at the time of your donation or your cost basis
  • for crypto held for less than a year, you can deduct whichever is lower: the cryptocurrencyʼs fair market value at the time of your donation or your cost basis for that cryptocurrency

For more information, check out our guide to how cryptocurrency donations are taxed.

CAPITAL GAINS TAX

How are stablecoins taxed?

Despite being explicitly designed for transactions, stablecoins are taxed the same as other cryptocurrencies. You’ll incur a capital gain or loss when you dispose of your stablecoin (though it’s likely that your capital gain will be close to 0).

For more information, check out our guide to stablecoin taxes.

TAX FREE

How is lost and stolen cryptocurrency taxed?

Lost, stolen, and hacked cryptocurrency is no longer tax-deductible after the Tax Cuts and Jobs Act of 2017. This includes:

  • Coins lost due to exchange hacks
  • Coins due to wallets being hacked
  • Coins lost from sending crypto to an incorrect address
  • Other negligent forms of crypto losses

For more information, check out our guide to lost, stolen, and hacked crypto taxes.

TAX DEDUCTIBLE

How are exchange bankruptcies taxed?

In 2022, exchanges like Voyager and Celsius went bankrupt, causing millions of investors to lose access to their cryptocurrency.

Cryptocurrency that is permanently lost after an exchange bankruptcy likely can be treated as an investment loss.

For more information, check out our guide to how exchange bankruptcies are taxed.

Capital Gains Tax

TAX DEDUCTIBLE

How do DeFi taxes work?

Cryptocurrency lending platforms and other DeFi services like Uniswap, Maker, and Compound have exploded in popularity in the past few years and brought with them new ways to invest in cryptocurrency.

It’s important to remember that the same tax rules that apply to other cryptocurrency transactions apply to DeFi. That means:

  1. Profits from cryptocurrency disposals — such as crypto-to-crypto trades — are taxed as capital gains
  2. Earned cryptocurrency — such as DeFi staking rewards — are taxed as income

It’s important to remember that the DeFi space is constantly innovating. As a result, there are often novel investment arrangements that do not fit squarely into existing tax frameworks.

The full tax implications associated with transactions common to the DeFi landscape are outside of the scope of this piece; however, we discuss them thoroughly in our DeFi Crypto Tax Guide.

Income Tax

Capital Gains Tax

How is adding and removing liquidity taxed?

When you deposit your cryptocurrency in a decentralized liquidity pool, you’ll often receive LP tokens that represent your position.

At this time, the IRS has not given explicit guidance on how depositing and withdrawing liquidity is taxed. You can take a conservative or aggressive approach depending on your risk appetite.

Conservative approach: Treat withdrawing and depositing liquidity as crypto-to-crypto trades subject to capital gains tax. You’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.

Aggressive approach: Treat withdrawing and depositing liquidity as non-taxable.

In general, it’s recommended that you take the conservative approach. However, how to report your taxes may vary depending on the specific mechanisms of your DeFi protocol. You should reach out to a crypto tax professional if you’re unsure how to report your liquidity pool transactions.

Income Tax

Capital Gains Tax

How do NFT taxes work?

From a tax perspective, NFTs are treated as property, similar to cryptocurrencies.

When you buy an NFT with cryptocurrency, this is considered a taxable disposal of your crypto. You’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.

When you dispose of an NFT, you’ll incur a capital gain or loss depending on how the price of your NFT has changed since you originally received it.

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If you’re a creator who mints NFTs, you’ll recognize income based on the revenue you receive from primary and secondary NFT sales.

The IRS has said that NFTs may be subject to the 28% collectible tax in certain circ*mstances. It’s possible that ‘profile picture’ and ‘art’ NFTs will be considered collectibles and taxed accordingly.

For more information, check out our Complete NFT Tax Guide.

INCOME TAX

How are DAOs taxed?

So far, the IRS hasn’t provided any guidance on how Decentralized Autonomous Organizations (DAOs) are taxed. It’s likely that they’ll be considered ‘flow-through entities’. This means that while the DAO itself won’t pay taxes, individuals recognize income based on their share of the organization’s profits.

For more information, check out our guide to DAO taxes.

How do other countries handle crypto taxes?

In recent years, governments all over the world have been creating tax policies for the cryptocurrency ecosystem. For more detailed information, check out our guides on various countries below:

  • Australia Crypto Taxes

  • Canada Crypto Taxes

  • UK Crypto Taxes

  • Germany Crypto Taxes

  • Ireland Crypto Taxes

  • India Crypto Taxes

  • New Zealand Crypto Taxes

Why crypto exchanges can't provide accurate tax forms

Cryptocurrency exchanges like Coinbase, Binance, and others often do not have the ability to provide their users with accurate capital gains and losses tax reports. This is not a fault of the exchanges themselves, it is simply a product of the unique characteristics of cryptocurrencies—namely their transferability.

Because users are constantly transferring crypto into and out of exchanges, the exchange has no way of knowing how, when, where, or at what cost basis you originally acquired your cryptocurrencies. The exchange only sees when crypto appears in your wallet and what the USD value was at the time of the deposit.

The second you transfer crypto into or out of an exchange, that exchange loses the ability to give you an accurate report detailing the cost basis of your cryptocurrencies, one of the mandatory components for tax reporting.

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As you can see pictured below, Coinbase themselves explained to their users how their generated tax reports wonʼt be accurate if any of them took assets out of or added assets into their Coinbase accounts from a different exchange or wallet. This affects over two-thirds of Coinbase users, which amounts to millions of people who cannot rely on Coinbase’s calculations to prepare their tax forms.

You can read more about the “crypto tax problem” in our blog post: Why Exchanges Canʼt Report Crypto Taxes.

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How to track cryptocurrency for tax purposes

The solution to the crypto tax problem hinges on aggregating all of your cryptocurrency transaction data that makes up your buys, sells, trades, airdrops, forks, mined coins, exchanges, swaps, and received cryptocurrencies into one place. Once this is done, you’ll be able to generate an accurate tax report containing all of your transaction data.

You can aggregate all of your transaction history by hand by pulling together your transactions from each of your exchanges and wallets. Of course, this can take a lot of time and energy. You can avoid the manual work and automate this process with crypto tax software.

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How cryptocurrency tax software can help

Cryptocurrency tax software like CoinLedger is built to automate the entire crypto tax reporting process. By integrating directly with leading exchanges, wallets, blockchains, and DeFi protocols, the CoinLedger engine can auto-generate all of your necessary tax reports based on your historical data. You can test out how it works by creating an account for free.

How it works

1. Select each of the cryptocurrency exchanges, wallets, and platforms youʼve used throughout the years.

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2. Import your historical transactions by connecting your accounts via API or uploading the CSV transaction history report exported by your exchanges.

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3. Finally, generate your complete crypto tax reports with the click of a button.

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Once youʼve generated your tax reports, you can send them to your tax professional or import them directly into your preferred tax filing software like TurboTax or TaxAct.

You can test out the software yourself by creating a free account here.

How to stay up-to-date on crypto tax news

The entire cryptocurrency ecosystem is still in its infancy. As the industry evolves, further rules and regulations will inevitably move forward.

Our team tracks every update within the world of cryptocurrency regulation, and we will continue to update this blog post with the most pertinent information as it is released. You can also follow us on Twitter for real-time updates and tax savings strategies.

“Our mission is to make cryptocurrency more accessible for everyone. If we can make tax reporting seamless, the entire ecosystem will benefit.”

Crypto Taxes: The Complete Guide (2024) (26)

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Crypto Taxes: The Complete Guide (2024) (2024)

FAQs

What is the new tax law for crypto in 2024? ›

2024 is the most important tax year for crypto investors to be reporting. For 2024, you still need to collect crypto data and properly report activity, including your cost basis. Starting in 2025, the IRS will have a “firehose of information” to verify whether past reporting was accurate, Gordon said.

Do I have to answer IRS crypto question? ›

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.

Will I get in trouble for not filing crypto taxes? ›

US taxpayers who fail to report crypto on their taxes can face serious consequences, including fines and penalties as high as $100,000 and up to five years in prison.

How do I bypass crypto taxes? ›

There is no way to legally avoid taxes when cashing out cryptocurrency. However, strategies like tax-loss harvesting can help you reduce your tax bill legally. Converting crypto to fiat currency is subject to capital gains tax. However, simply moving cryptocurrency from one wallet to another is considered non-taxable.

What states do not tax crypto gains? ›

However, there is no tax for simply owning cryptocurrency. What states have no crypto tax? Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income taxes (although New Hampshire and Tennessee tax interest and dividends while Washington taxes capital gains).

How long to hold crypto to avoid taxes? ›

If you own cryptocurrency for one year or less before selling, you'll pay the short-term capital gains tax. Short-term capital gains taxes are higher than long-term capital gains taxes.

What triggers IRS audit crypto? ›

Crypto-specific activity that might trigger an audit includes: Failure to accurately report crypto transactions and income. Large transactions or significant gains. Inconsistencies or discrepancies.

Does IRS track your crypto? ›

Cryptocurrencies are traceable, with transactions recorded on a public ledger accessible to the IRS. The IRS uses advanced methods to track crypto transactions and enforce tax compliance. Centralized exchanges provide user data to the IRS.

Do I need to report crypto if I didn't sell? ›

You can send any of your crypto between your personal wallets without paying any taxes; Even if you don't sell any of your crypto, you'd still need to answer the crypto question on Form 1040, including reporting your crypto income in your income tax return.

Will the IRS know if I don't report my crypto? ›

Crypto tax evasion and crypto tax avoidance are illegal. 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.

Has anyone been audited for crypto? ›

Can you get audited for cryptocurrency? Yes. If the IRS has reason to believe that you are underreporting your crypto taxes, it is likely that they will initiate an audit.

Which exchanges don't 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.

Do I have to pay taxes on crypto if I don't withdraw? ›

As long as you hold digital assets you purchased with fiat currency without converting them into cash or other crypto, you are not required to report or pay taxes on any potential gains to the IRS. However, when you sell your cryptocurrency, there are tax consequences.

What if I lost money on crypto taxes? ›

If you sell your crypto for a loss, the IRS allows you to offset losses against other income on your tax return. These so-called “realized losses” can be used to offset other taxable investment profits. When you hear the term “realized,” it usually means that an asset was sold.

Should I cash out my crypto? ›

Reasons for cashing out crypto or Bitcoin

The decision to cash out crypto or Bitcoin depends on your financial goals and market conditions. You may want to lock in gains, cut or harvest losses for taxes, or simply use your digital assets in the real world. It's crucial to consider tax implications and market timing.

How will taxes change in 2024? ›

In response to inflation, the IRS has adjusted marginal tax brackets and the standard deduction for 2024. As a result of the changes, many Americans will be able to keep more of their 2024 income. Other big changes include increases to the allowed contribution amounts for tax-advantaged retirement savings accounts.

What is the future tax on crypto? ›

1% TDS (Tax Deducted At Source)

In futures trading, TDS applies when you sell USDT after the realised PnL. The buyer deducts it from the selling value of the token in INR or any other cryptocurrency. This TDS amount can be claimed back at the end of the financial year.

What is the future of cryptocurrency 2024? ›

With the impending ETF approval, halving, and potential rate cuts from the US Fed, Bitcoin is poised to reach greater heights in 2024. The go-to platform for smart contracts and dApps, Ethereum fuels the burgeoning field of decentralised finance (DeFi).

How much do you have to make in crypto to pay 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.

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