Key takeaways
- No tax for holding crypto: There’s no tax for simply holding cryptocurrencies like BTC or ETH.
- Taxable events: You’ll pay taxes if you earn crypto (staking, mining, etc.) or dispose of it (selling, trading for another crypto, etc.)!
Do I pay taxes if I don't sell my cryptocurrency?
You do not need to pay taxes for simply holding cryptocurrency. For example, if you buy BTC with US dollars and hold it indefinitely, you will not pay tax.
When do I pay taxes on cryptocurrency?
You owe taxes when you earn or dispose of cryptocurrency.
When do I pay capital gains tax on crypto?
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.
Examples:
- Selling your crypto
- Trading your crypto for another cryptocurrency
- Using your crypto to make a purchase
When do I pay income tax on crypto?
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.
Examples:
- Staking rewards
- Mining rewards
- Referral rewards
Do I need to pay taxes if I reinvested my crypto?
All disposals of cryptocurrency are subject to tax — regardless if you reinvest the proceeds of your sales afterwards. Consider the following scenario.
In this case, James will have to recognize $1,000 of capital gain.
Crypto tax-free events
The following events are not subject to tax.
- Holding cryptocurrency
- Transferring your crypto between different wallets you own
- Receiving a cryptocurrency gift
- Donating crypto
How do I report cryptocurrency on my taxes?
To accurately report crypto taxes, it’s important to keep detailed records of all of your cryptocurrency transactions. This should include the following information:
- A description of the crypto-asset you sold
- The date you originally acquired your crypto-asset
- The date you sold or disposed of the crypto-asset
- Proceeds from the sale (fair market value in USD)
- Your cost basis for purchasing the crypto-asset (fair market value in USD)
- Your gain or loss
- Any fees related to buying or selling the crypto-asset
Alternatively, you can use crypto tax software to track your transactions and automatically generate your tax forms!
What forms should I use to report crypto on my taxes?
Let’s walk through the forms you can use to report your crypto transactions.
Form 8949: This form is used to report your crypto gains and losses. You’ll need to report each disposal of cryptocurrency along with its date and price when you acquired and disposed of it.
Form 1040 Schedule 1: This form is used to report your income from cryptocurrency. You’ll report your income on the section labeled ‘Other Income’.
Do I have to report crypto on my taxes if I have losses?
You are required to report your losses from cryptocurrency. Remember, crypto losses come with tax benefits!
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, the following strategies can help you reduce your crypto tax bill legally:
- Tax-loss harvesting your crypto
- Holding cryptocurrency in an IRA
- Claiming crypto donations as a deduction
For more information, check out our guide to avoiding crypto taxes legally.
How do I take profits on crypto without selling?
If you want to take profits from cryptocurrency without triggering a tax liability, there are some options available.
- Crypto lending: By using your cryptocurrency as collateral for a loan, you can get access to USD without selling your crypto!
- Staking: Staking can be a great way to earn passive income while you continue to hold your crypto. However, it’s important to note that you are required to pay income tax on your staking rewards.
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.
In the past, the IRS has worked with contractors like Chainalysis to match ‘anonymous’ crypto wallets to known individuals.
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 taxable events from cryptocurrency should be reported to the IRS, regardless of how much you made. Intentionally not reporting taxable income is considered tax evasion.
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!
Frequently asked questions
- Do you have to pay taxes on Bitcoin if you didn’t cash out?
- Is converting crypto on Coinbase a taxable event?
- How do I withdraw crypto without paying taxes?
- Do you have to pay taxes on crypto if you reinvest?
- Which exchanges do not report to the IRS?
- Is trading one cryptocurrency for another a taxable event?
.png)
How we reviewed this article
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.
