Crypto Taxes
Expert verified
5 min read

Do You Pay Taxes on Crypto if You Reinvest?

Do You Pay Taxes on Crypto if You Reinvest?
Do You Pay Taxes on Crypto if You Reinvest?
Our Editorial Standards:
Our content is designed to educate the 500,000+ crypto investors who use the CoinLedger platform. Though our articles are for informational purposes only, they are written in accordance with the latest guidelines from tax agencies around the world and reviewed by certified tax professionals before publication. Learn More
on this page

Key takeaways

  • There’s no tax for simply holding crypto.
  • You’ll only pay taxes in the event that you earned or disposed of cryptocurrency. 
  • It’s important to report all of your taxable income from cryptocurrency on your tax return. 

It’s one of the most common misconceptions on cryptocurrency taxes. 

‘There’s no need to pay tax on your crypto if you didn’t sell or convert it to U.S. dollars!’ 

Unfortunately, it’s not true. There are many situations where you are required to pay taxes on cryptocurrency even if you didn’t convert your holdings to fiat currency. 

In this guide, we’ll break down different scenarios where you’ll be required to pay tax on crypto even if you didn’t sell or if you reinvested your profits. By the time you’re finished reading, you’ll have a better understanding of the different taxable events you may encounter in the cryptocurrency ecosystem. 

How is cryptocurrency taxed? 

You owe taxes when you earn or dispose of cryptocurrency. 

Capital gains tax: When you dispose of your cryptocurrency, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it. 

Ordinary income tax: When you earn cryptocurrency, you’ll owe ordinary income tax based on the fair market value of your crypto at the time of receipt. 

You owe taxes if you earn crypto

For more information, check out our complete guide to how cryptocurrency is taxed

Crypto income and crypto disposal examples 

Here are a few examples of disposal events where you’re required to pay capital gains tax on cryptocurrency! 

  • Selling your crypto 
  • Trading one cryptocurrency for another
  • Using crypto to make a purchase

Here’s a few examples of events where you earn cryptocurrency income. 

  • Earning cryptocurrency staking income
  • Earning cryptocurrency referral rewards
  • Earning cryptocurrency mining income 
  • Receiving cryptocurrency interest 

Crypto tax-free events

The following events are not subject to tax. 

  • Holding cryptocurrency 
  • Transferring your crypto between different wallets
  • Receiving a cryptocurrency gift 
  • Donating crypto 

Do you have to report crypto on my taxes if I have no gains? 

Crypto losses reduce your tax bill

If you’ve sold your cryptocurrency at a loss, reporting your transactions can actually come with a tax benefit. 

Capital losses can offset capital gains from cryptocurrency, stocks, and other assets. If you have a net loss for the year, you can offset up to $3,000 of capital losses. 

For more information, check out our guide to crypto tax-loss harvesting

How do I avoid capital gains tax on crypto? 

There’s no way to legally evade your crypto taxes. However, strategies like tax-loss harvesting can help you legally reduce your crypto tax bill. 

For more information, check out our guide to avoiding crypto taxes legally

What happens if I don’t report crypto on my taxes? 

Not reporting your cryptocurrency income is considered tax evasion — a felony with a maximum penalty of 5 years imprisonment and a fine of up to $100,000. 

While cryptocurrency transactions are anonymous, all transactions on blockchains like Bitcoin are publicly visible and permanent. Catching a tax cheat is as easy as matching an ‘anonymous’ wallet to a known individual. In the past, the IRS has worked with contractors like Chainalysis for this very purpose. 

If you haven’t reported cryptocurrency on your tax return in previous tax years, you should file an amended tax return. The IRS is known to give more leeway to taxpayers who make a good-faith effort to file an accurate tax return. 

Do I have to report crypto on taxes if I made less than $1,000? 

All of your cryptocurrency income and disposal events should be reported to the IRS, regardless of how much you made. Intentionally not reporting taxable income is considered tax evasion. 

How do I report cryptocurrency on my taxes? 

You can report your cryptocurrency capital gains and losses on Form 8949. Cryptocurrency income can be reported on Form 1040 Schedule 1

For more information, check out our guide on how to report cryptocurrency on your tax return

How to file your crypto taxes in minutes 

Looking for an easy way to calculate your crypto taxes? Try CoinLedger — the crypto tax software trusted by 500,000 investors across the globe. 

Simply connect your wallets and exchanges and CoinLedger will calculate your tax bill for you! 

Once you’re done, you can export your crypto tax report to your tax platform of choice or send it off to your accountant! 

Get started with a free account today. 

Frequently asked questions 

Do you have to pay taxes on Bitcoin if you didn’t cash out? 

In the event that you held your crypto and didn’t earn any crypto-related income, you won’t be required to pay taxes on your holdings. 

Is converting crypto on Coinbase a taxable event? 

Yes. Trading cryptocurrency for fiat on Coinbase or another platform is considered a taxable event. 

How do I withdraw crypto without paying taxes? 

There’s no way to legally evade taxes when you convert crypto to fiat currency. This is considered a disposal event subject to capital gains tax. 

Do you have to pay taxes on crypto if you reinvest? 

If you disposed of your cryptocurrency and then reinvested your funds, you’ll still be required to pay capital gains tax on your disposals. 

Which exchanges do not report to the IRS? 

At this time, exchanges like KuCoin do not have KYC for their customers. For more information, check out our guide to no KYC exchanges

Is trading one cryptocurrency for another a taxable event? 

Yes. Trading one cryptocurrency for another is subject to capital gains tax. You will incur a capital gain or loss depending on how the price of the crypto you’re trading away has changed since you originally received it.

Frequently asked questions

  • MinuPlus
  • MinuPlus
  • MinuPlus
  • MinuPlus
  • MinuPlus
  • MinuPlus
Want to try CoinLedger for free? Claim your free preview tax report.

Join 500,000 people instantly calculating their crypto taxes with CoinLedger.

How we reviewed this article

Edited By

All CoinLedger articles go through a rigorous review process before publication. Learn more about the CoinLedger Editorial Process.

CoinLedger has strict sourcing guidelines for our content. Our content is based on direct interviews with tax experts, guidance from tax agencies, and articles from reputable news outlets.


Demystify Crypto Taxes

The Ultimate Crypto Tax Guide (2024)

This guide breaks down everything you need to know about cryptocurrency taxes, from the high level tax implications to the actual crypto tax forms you need to fill out.

Crypto taxes overview
Crypto Tax Rates 2024: Complete Breakdown

Here’s how much tax you'll be paying on your income from Bitcoin, Ethereum, and other cryptocurrencies.

Crypto tax rates
How Crypto Losses Can Reduce Your Taxes

Crypto and bitcoin losses need to be reported on your taxes. However, they can also save you money.

How crypto losses lower your taxes

Calculate Your Crypto Taxes

  • Check
    No credit card needed
  • Check
    Instant tax forms
  • Check
    No obligations
Get Started For Free
Jump to