Tax Implications of Cryptocurrency

Tax Implications of Cryptocurrency

IRS Treatment of Crypto

The IRS classifies cryptocurrency as property, not currency. This means:

• Every taxable transaction may trigger a capital gain or loss
• You must track the cost basis of every coin

Taxable Events

• Selling crypto for fiat currency (USD)
• Trading one crypto for another
• Using crypto to purchase goods or services
• Receiving crypto as payment for work
• Mining rewards and staking income

Non-Taxable Events

• Buying crypto with USD
• Transferring between your own wallets
• Holding (HODLing) without selling
• Gifting crypto (gift rules apply)

Capital Gains Rules

• Short-term (held ≤ 1 year): Taxed as ordinary income
• Long-term (held > 1 year): Taxed at preferential capital gains rates

Reporting Requirements

• Report on Form 8949 and Schedule D
• IRS Form 1099-DA (new for 2025) from brokers
• Answer the crypto question on Form 1040 honestly

Record-Keeping

Track for every transaction:

• Date acquired and sold
• Purchase price (cost basis)
• Sale price
• Exchange used

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