Whether you’re just curious about crypto or have a few coins in your digital wallet, there’s one key thing to understand: the IRS treats digital currency as property — and that means taxes.
Here’s a clear breakdown of what that means for you.
💰 What Counts as a “Digital Asset”?
Per the IRS, digital assets include: – Cryptocurrency (Bitcoin, Ethereum, etc.) – Stablecoins (like USDC or Tether) – NFTs – Other blockchain-based tokens used for investment or transactions
Even if you never cash it out, just owning or using crypto can affect your taxes. That’s why there’s now a crypto question on every Form 1040.
💵 Buying Crypto = Not Taxable (Yet)
Good news: simply buying and holding crypto with cash isn’t a taxable event.
But as soon as you sell, trade, or use that crypto? That’s when taxes come into play.
Example: You buy 1 ETH for $1,200. Months later, it’s worth $2,000 and you sell it. That $800 gain is taxable.
⚡️ Taxable Crypto Activities
These are all actions that can trigger tax consequences: – Selling crypto for cash – Trading one crypto for another – Using crypto to buy something (even pizza) – Getting paid in crypto (business or personal) – Mining or staking rewards – Receiving airdrops or promo tokens
Depending on how you receive it, crypto can be taxed as capital gains or ordinary income.
Income = report at full market value when received Capital gain/loss = based on your cost vs sale price
📅 Holding Time Matters
- Under 1 year = Short-term capital gain (taxed like income)
- Over 1 year = Long-term capital gain (lower rates)
📊 What About Crypto Losses?
Crypto losses can help offset your gains — just like with stocks. – Up to $3,000 in losses can offset other income each year – Extra losses carry forward to future tax years
Lost access to your wallet? Unfortunately, unless the crypto is deemed permanently worthless, it’s not deductible.
📆 IRS Reporting Is Getting Stricter
Starting in 2025, crypto exchanges will be required to issue Form 1099-DA for transactions.
If you’ve bought or sold crypto and haven’t reported it, now’s the time to fix it. Amending past returns could help you avoid future penalties or audits.
🔗 Gifts, Payments & Income
- Gifts: Receiving crypto as a gift is tax-free. But when you sell it, you’ll need the donor’s original cost basis to report gains.
- Payments: If you’re paid in crypto, that counts as income at the time received, just like a paycheck. You might get a 1099-NEC if it’s for work.
✉️ Keeping Records
Because most exchanges still don’t send full 1099s, you’re responsible for tracking your crypto transactions: – Dates bought/sold – What you paid (cost basis) – Sale price or value received – Transaction fees – Exchange or wallet used
Use a spreadsheet or crypto tax app to make this easier.
📝 Where to Report It
If you checked “Yes” to the crypto question on your 1040: – Use Schedule D + Form 8949 for sales/trades – Use Schedule 1, B, or C for income (depending on how you received it)
Final Word
Crypto might be digital, but the taxes are very real. Keep clean records, plan ahead, and ask questions early.
📞 Contact LP Tax & Bookkeeping Pros in Greenville, TX
Ralph Pinney | 303-881-9762