Cryptocurrency Tax Guide
Understand U.S. tax obligations for cryptocurrency transactions, including capital gains, ordinary income, and reporting requirements.
Overview
The IRS treats cryptocurrency as property for federal tax purposes. That means when you sell, trade, or use crypto, you're subject to the same tax rules as selling stocks or other property.
This is general information based on current IRS guidance. Your specific situation may differ. If you need help with your crypto taxes, use the intake form to see if we can work together.
Taxable Events
The following events typically trigger tax obligations:
- Selling cryptocurrency for fiat currency
- Exchanging one cryptocurrency for another
- Using cryptocurrency to purchase goods or services
- Receiving cryptocurrency as payment for goods or services
- Receiving cryptocurrency from mining, staking, or airdrops
- Receiving cryptocurrency as wages or compensation
Capital Gains Treatment
When you sell or trade cryptocurrency, you'll have a capital gain or loss. How it's taxed depends on how long you held it:
Short-term capital gains:
Property held for one year or less. Taxed at ordinary income tax rates.
Long-term capital gains:
Property held for more than one year. Taxed at preferential capital gains rates (0%, 15%, or 20% depending on income level).
Your gain or loss is the difference between what you got for the crypto and what you paid for it (your cost basis).
Ordinary Income Events
Some crypto you receive counts as ordinary income and gets taxed at your regular income tax rate. Report these at their dollar value when you received them:
- Cryptocurrency received as wages or compensation
- Mining rewards
- Staking rewards (see separate guide)
- Airdrops
- Hard fork proceeds
- Referral bonuses or promotional rewards
Whatever you report as income becomes your cost basis when you later sell or trade that crypto.
Cost Basis Methods
Cost basis is what you originally paid for an asset. When you sell crypto that you bought at different times and prices, you need to figure out which specific coins you're selling.
Specific Identification:
You can pick which specific coins you're selling if you have good records and identify them at the time of sale.
FIFO (First-In, First-Out):
If you don't pick specific coins, the IRS assumes you sold the oldest ones first.
Keep detailed records to back up whichever method you use.
Reporting Requirements
Cryptocurrency transactions must be reported on your tax return:
- Form 1040: Answer the digital asset question on the front of Form 1040
- Schedule D and Form 8949: Report capital gains and losses
- Schedule 1: Report ordinary income from cryptocurrency
- Schedule C: Report income from cryptocurrency mining as business income(IRS)
Not reporting crypto transactions can lead to penalties and interest charges. If you expect to owe $1,000 or more in tax, you may need to make estimated tax payments.(IRS)
Record Keeping
Maintain detailed records of all cryptocurrency transactions, including:
- Date of acquisition and disposal
- Fair market value in U.S. dollars at time of each transaction
- Cost basis and holding period
- Type of transaction and parties involved
- Exchange or wallet addresses
- Transaction fees
Keep records for at least three years from when you file your return. If you substantially underreported income, keep them longer. If you hold cryptocurrency on foreign exchanges with an aggregate value exceeding $10,000, you may need to file an FBAR(FinCEN) and Form 8938(IRS) under FATCA. Arc & Ledger can help you organize your cryptocurrency transactions and ensure proper reporting, with individual tax preparation including crypto transactions starting at $650.
Crypto Capital Gains Calculator
Estimate your capital gains tax on a crypto transaction based on cost basis, sale price, and holding period.
Crypto Capital Gains Calculator
Estimate only. Long-term rate assumes 15% (most common). Actual rate may be 0% or 20% depending on total income. Does not include Net Investment Income Tax (3.8%) for high earners.
Frequently Asked Questions
Related Guides
IRS Tax Controversy & Resolution Guide
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One Big Beautiful Bill Act (OBBBA) Guide
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Staking Rewards Tax Guide
How staking rewards are taxed under current IRS guidance, including timing of income recognition and documentation requirements.
Related Services
Arc & Ledger provides professional assistance in these areas
Individual Tax Services
Expert cryptocurrency tax reporting including capital gains calculations, cost basis tracking, and Schedule D preparation. We handle complex crypto portfolios.
International Tax Services
If you hold crypto on foreign exchanges, we can help with FBAR and FATCA compliance to ensure you meet all international reporting requirements.
Weekly Tax Tips
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Free Crypto Tax Checklist
Capital gains tracking, DeFi income reporting, and FBAR requirements for crypto holders. Avoid costly mistakes.
Disclaimer: This guide is for general informational purposes only and is current as of its publication date. Tax laws change frequently. Please consult a qualified tax professional for advice specific to your situation.
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