Wondering how crypto tax works and what the IRS crypto tax rules are? The IRS has set out clear guidance on how crypto is taxed. Bitcoin and other cryptocurrencies attract both Capital Gains Tax and Income Tax. We're breaking down everything you need to know about taxes on crypto in the US in our ultimate crypto tax guide including how crypto is taxed, the crypto tax rate, crypto capital gains tax and crypto income tax, all ahead of the April 18th tax deadline!

Do you have to pay taxes on Bitcoin and crypto?

Yes, you'll pay tax on cryptocurrency gains and income in the US. The IRS is clear that crypto may be subject to Income Tax or Capital Gains Tax, depending on the specific transaction you've made.

How much is crypto taxed in the USA?

You'll pay up to 37% tax on short-term capital gains and crypto income and between 0% to 20% tax on long-term capital gains - although NFTs deemed collectibles may be taxed at 28%. The amount of tax you'll pay on crypto in the USA depends on how much you earn, the specific transaction, and how long you've held the asset.

This guide is regularly updated

Before we dive into our US crypto tax guide - the IRS rules on crypto tax are constantly changing. At Koinly, we keep a very close eye on the IRS crypto policies and regularly update this guide to keep you informed and tax-compliant.

6 April 2023: Need to file a tax extension? Learn how.

22 March 2023: Updated with the latest IRS guidance on NFTs collectibles tax.

9 March 2023: Updated to include Biden's 2023 Budget crypto tax reform proposals.

16 January 2023: Updated for 2023 with new rates, dates and IRS guidance on losses for worthless tokens.

23 September 2022: The IRS releases a draft of the 2023 Form 1040 tax return - with a new section for digital assets.

15 February 2022: Updated to include new 2022 tax rates.

8 January 2022: The IRS confirms the tax deadline for 2022 is extended to Monday the 18th of April.

7 January 2022: Staking guidance updated to reflect Jarrett v. United States case.

3 December 2021: New year, new guide!

10 October 2021: IRS announces 2021 filing deadline extension is 15 October 2021. 

22nd May 2021: Crypto taxes with TaxAct? Here's our video guide.

17 March 2021: IRS announces 2021 filing deadline extension - 17 May 2021.

19 April 2021: Crypto taxes with TurboTax? Here's our video guide.

24 July 2019: Welcome to your cryptocurrency tax guide!

Watch how to do your US crypto taxes

In a rush and need a bitesized tutorial on how US crypto taxes work and how to file? We got you.

Is any crypto tax free?

Let's start with the good news - not all crypto transactions are taxed in the USA.

You won't pay tax on crypto when:

• Buying crypto with fiat currency.
• HODLing crypto.
• Moving crypto between your own wallets.
• Gifting crypto - provided you haven't reached the lifetime gift limit.
• Donating crypto to charity is tax deductible - although you may need a qualified appraisal if you're donating more than $5,000.
• Creating an NFT.

Can the IRS track crypto?

Yes - the IRS can track crypto. So if you're asking yourself do you have to pay taxes on crypto gains? Does the IRS know about my crypto investments? Stop right there.

Here's how the IRS knows about your crypto:

• All major crypto exchanges must now complete KYC (Know Your Customer) checks.
• Exchanges process banking information where they accept fiat payments in exchange for crypto.
• Many exchanges also have records of crypto addresses you've withdrawn funds to - so they can identify custodial wallets too.
• Many exchanges are sending 1099 forms to the IRS and users.
• The IRS has won cases against Coinbase, Kraken, and Poloniex, forcing them to share customer data.

You can learn more about 1099 forms, Coinbase and the IRS, John Doe Summons, and how the IRS tracks crypto in our blogs.

How is crypto taxed in the US?

Because Bitcoin and other cryptocurrencies are viewed as property from a tax perspective there are two potential taxes that could apply for individuals - Income Tax or Capital Gains Tax.

The cryptocurrency tax you'll pay depends on the type of transactions you're making with your crypto. We'll look at both.

Capital Gains Tax & crypto

Because crypto is viewed as a capital asset from a tax perspective, anytime you dispose of crypto, you may need to pay Capital Gains Tax. There are a few ways you can dispose of your cryptocurrency in the US:

• Selling crypto for fiat currency.
• Trading crypto for crypto (including stablecoins, tokens, and more!)
• Spending crypto on goods or services.

You’ll pay Capital Gains Tax on any capital gain (profit) you made as a result of a disposal.

Crypto Capital Gains Tax rates

There isn't a specific crypto Capital Gains Tax rate - it's based on the general Capital Gains Tax rules. The Capital Gains Tax rate you'll pay on your crypto depends on how long you've held your asset for and how much you earn. If you've held crypto for less than a year, you'll pay the short-term Capital Gains Tax rate. If you've held crypto for more than a year, you'll pay the long-term Capital Gains Tax rate.

Federal Income Tax rates

For short-term capital gains, you'll pay the same tax rate as you do on your taxable income. This is based on the Federal Income Tax rate brackets. For the 2022 tax year these are:

Planning ahead for next year? For the 2023 tax year - the Federal Income Tax rates are:

Capital Gains Tax rate

Meanwhile, long-term Capital Gains Tax for crypto is lower for most taxpayers. You'll pay a 0%, 15%, or 20% tax rate depending on your taxable income. If you earn less than $41,676 including your crypto (for the 2022 tax year) then you'll pay no long-term Capital Gains Tax at all.

It's important to note though that for NFTs deemed collectibles, you may pay a higher 28% tax on long-term gains. We'll cover this in more depth shortly.

The long-term Capital Gains Tax rates for the 2022 tax year are:

The long-term Capital Gains Tax rates for the 2023 tax year (for taxes due in April 2024) are:

Learn more about short-term and long-term crypto tax rates.

How to calculate crypto capital gains

So how much tax do you pay on crypto gains?

A capital gain or loss is the difference in value from when you acquired your crypto to when you disposed of it. This is called a taxable event. So any time you sell, trade or spend your crypto - you'll have a capital gain or loss. If you've made a profit from your crypto disposal - you'll have a capital gain. If you've made a loss from your crypto disposal - you'll have a capital loss.

Calculating your crypto capital gain and losses is easy enough. First, you need to figure out your cost basis. Your cost basis is how much it cost you to acquire your crypto asset, including any transaction fees. If the crypto didn't cost you anything to acquire - like if you were gifted it - you'll instead use the fair market value of that cryptocurrency asset in USD, on the day you received it.

Once you know your cost basis - simply subtract it from the value of the asset on the day you disposed of it to calculate whether you have a capital gain or loss.

If you have a gain, you'll pay Capital Gains Tax on that gain. If you have a loss, you won't pay Capital Gains Tax - but you do want to keep track of these because you can offset capital losses against gains - more on this later.

Let's look at an example to figure out how much tax you could pay on cryptocurrency.

USA crypto cost basis method

Now you know how crypto is taxed, you can calculate your crypto taxes... simple, right?

It actually gets a lot more complicated at this point. If you've got multiple crypto investments and transactions - it all starts to look like a bit of an uphill battle. First things first, you'll need to figure out your cost basis.

We've talked about cost base above and on the face of it, it sounds quite simple. However, what happens when you've got multiple assets and transactions in play.

Let's use an example - you bought 1 BTC in 2019 for $4,000. In 2020, you bought another BTC for $20,000. In 2021, you sold 1 BTC for $30,000. If you use your first cost base, you've got a capital gain of a whopping $26,000. While if you use the second cost base, you have a very respectable capital gain of $10,000.

So how do you know which to use? Do you go through each transaction and identify each private key and cross-reference that with the transaction? You could, but even our example above is simplistic. Many crypto investors have hundreds of assets and thousands of trades throughout the year, making this a mountainous task.

This is where cost basis accounting methods come in. These methods dictate the way you calculate cost basis for a given financial year.

It's good news for American crypto investors because the IRS allows multiple cost basis methods - and these can have a big impact on your crypto tax bill. The IRS allows:

• First In First Out (FIFO): the first asset you bought is the first asset you sell.
• Last In First Out (LIFO): the last asset you bought is the first asset you sell.
• Highest In First Out (HIFO): the most expensive asset you bought is sold first.
• Specific Identification (Spec ID): pick the asset you sold, provided you can identify it with records.

Of course, these accounting methods may have a huge impact on your crypto tax bill. If you used FIFO on the example above, you'd pay Capital Gains Tax on a $26,000 profit. Whereas if you used LIFO, you'd pay Capital Gains Tax on a far lower $10,000 profit. You can learn more about the different cost basis accounting methods in our guide, but there are no wrong or right answers here. The right accounting method for you may differ based on your individual circumstances, but will help you pay less tax on your crypto.

Cryptocurrency tax breaks

American crypto investors can benefit from a few tax free allowances that can help them pay a little less tax on their crypto:

1. Gifting crypto under $16,000 (or $17,000 for 2023): You can gift up to $16,000 in crypto per person tax-free. This is known as the annual gift tax exclusion. This can help you take advantage of lower Income Tax rates in your household to pay less tax overall. If you gift over this amount, provided you're under the lifetime gift tax exemption of $12.06 million in 2022 (or $12.92 million in 2023) - you won't need to pay gift tax. However, you may need to file Form 709 (more on this below).
2. Capital Gains Tax Free Allowance: If you earned less than $41,675 in 2022 in total income (including your crypto gains) you'll pay no Capital Gains Tax on long-term gains.
3. Long-term Capital Gains Tax Rate: If you HODL your crypto for more than a year, you'll pay a lower long-term Capital Gains Tax rate of between 0% to 20% depending on how much you earn.

Crypto capital losses

You don't pay Capital Gains Tax on any crypto capital losses. But don't just write these off as a bad investment, instead offset your capital losses against your capital gains to reduce your overall tax bill. This is often referred to as ‘loss harvesting’.

Long-term capital losses for those assets held more than one year can be used to offset long-term capital gains; while short-term capital losses for those assets held one year or less can be used to offset short-term capital gains. Remember, in general, you’re only allowed to offset losses of the same type in order, so you'll offset long-term losses against long-term gains and short-term losses against short-term gains, although once you've offset in this order you may offset either short or long if you have unutilized losses still. As well as this, if you have losses from NFTs deemed collectibles, you'll need to utilize these in a particular order as well.

All this said, there are a few different scenarios that can play out with losses, so let's take a look at each.

1. Crypto bear market. You've only got losses. But you also invest in the stock market and you've got some gains from this. Use the capital losses from your crypto to reduce your capital gains from other investments.
2. You only have losses from your crypto investments, but you don't trade on other markets so you have no profit. If you don't have any capital gains to offset your crypto losses against, you can offset your crypto losses against your ordinary income, up to $3,000 per year (for those filing as single or married and filing jointly). Even better - you can carry these losses over to future tax years until all your losses have been utilized.
3. You want to get strategic. Just because you had a crypto capital loss this year doesn't mean you want to offset that loss, this year. You know you've got some unrealized gains in the bank... which will come with a huge tax bill when you realize them. If you're strategic, you'll harvest and report your losses now, so you can save and carry them forward to offset future gains.

Tax on lost or stolen crypto

The IRS does not let crypto investors claim lost or stolen crypto as a capital loss. It's a harsh stance and it wasn't always this way. Prior to the Tax Cuts and Jobs Act, crypto investors could claim theft and casualty losses as a capital loss. However, since this bill came into effect, casualty and theft losses are no longer tax deductible. So if you've lost your crypto due to a hack, scam or because you've lost your private keys - you're out of luck.

Losses that occurred prior to 2017 may be deductible as long as you can prove ownership of the assets and can provide a declaration or receipt of some kind from the exchange which specifies how much you lost in the hack.

So if you lose crypto - whether that's from losing your private keys or to a scammer - you can't claim any kind of deduction for it. The best thing you can do is simply write it off and disregard it from your calculations entirely.

In some circumstances - like with a rug pull - you'll still be in possession of your asset, it will just be worthless. This is actually good news for US investors from a tax perspective as it means they can realize their loss by disposing of their asset and create a capital loss to offset against their gains. Here's how to realize a loss:

• Sell your tokens on an exchange if possible.
• If your tokens are no longer listed on an exchange, you may be able to use a native or non-custodial wallet to swap them for another token.
• Send your tokens to a burn wallet.

Crypto Income Tax USA

Now we've covered capital gains, let's look at when your crypto might be taxed as income instead. There are many crypto transactions that can be viewed as income and subject to Income Tax. The simplest way to look at this is any time you're seen to be 'earning' crypto, it'll be subject to Income Tax instead of Capital Gains Tax.

The IRS has quite a lot of guidance about when cryptocurrency could be seen as income instead of a capital gain. This includes:

• Getting paid in crypto.
• Mining crypto - on a hobby level.
• Receiving an airdrop.
• Receiving new coins from a hard fork.
• Staking rewards.
• Referral bonuses.

With the dawn of DeFi - there are many more ways to earn crypto. The IRS hasn't released specific guidance on many of these transactions just yet, but that doesn't mean you won't pay tax on them. Examples of new ways you can earn crypto from DeFi include:

• Earning interest through lending protocols like AAVE or Compound.
• Earning new liquidity pool tokens, governance or reward tokens on protocols like Uniswap.
• Earning staking rewards for staking tokens like SUSHI or CAKE.

There's also many earn-to-engage platforms that have sprung up in recent years where the crypto you receive could be considered income. As we said above, for many of these transactions - particularly newer DeFi protocols - there is not yet any clear IRS guidance on the tax these may be subject to. However, as earning crypto through staking and mining is considered income, it is highly likely that earning through these other platforms would be considered income from a tax perspective as well. It is advisable to speak to a crypto tax accountant for bespoke advice on these investments. Examples of potential crypto income include:

• Referral rewards like Binance Referral.
• Learn to earn campaigns like Coinbase Learning Center.
• Watch to earn platforms like Odysee.
• Browse to earn platforms like Brave browser.
• Play to earn games like Axie Infinity.
• Shop to earn through browser extensions like Lolli.

How to calculate crypto income

Crypto income is easy to calculate - although time consuming if you have regular income! Just take the fair market value of the crypto you received in USD on the day you received it. This is the amount you earned and the amount you'll pay tax on at your Federal Income Tax rate, as well as potentially your State Income Tax rate.

Do you pay tax when you buy crypto in the US?

Yes and no. It all depends on what you're buying your crypto with as to whether you'll pay tax. Let's break it down.

Is trading one cryptocurrency for another a taxable event?

Swapping one crypto for another and thinking you'll avoid paying tax? Think again. Swapping crypto for crypto is taxable.

Do you pay tax when you sell crypto in the US?

Yes - you'll pay tax when you sell crypto in the US. But the amount you pay will vary depending on how long you've held your asset and your regular income. You'll pay short-term Capital Gains Tax on crypto held for under a year and long-term Capital Gains Tax on crypto you've held for more than a year.

Do you pay tax when transferring crypto?

The IRS has confirmed that when you're moving crypto around between your own wallets - this isn't seen as a disposal and you don't need to report it or pay Capital Gains Tax. However, nothing is quite so straightforward in the world of crypto and transactions like adding and removing liquidity may get a little more confusing from a tax perspective.

How are airdrops and forks taxed in the US?

Airdrops and hard forks are taxed as income in the US - so you'll pay Income Tax. The bad news keeps on coming because when you later dispose of an crypto asset you received through an airdrop or hard fork - you'll also pay Capital Gains Tax.

Crypto gifts and donations tax

It's good news for US crypto investors when it comes to giving the gift of crypto or spreading the love with a crypto donation. In most instances, these events are tax free and even tax deductible.

Mining crypto tax

The IRS is quite clear that crypto mining is subject to Income Tax, as well as Capital Gains Tax when you later dispose of mined coins.

It's important to note that if you're self-employed and running a crypto mining business, you'll also need to pay Self Employment Tax to cover your Medicare and social security contributions.

Staking crypto taxes

Confusing - the term staking gets used interchangeably in crypto. It can refer to both DeFi lending and proof-of-stake cryptocurrencies. From a tax perspective, this matters because they may have different tax implications.

Staking as part of a PoS consensus mechanism

Some cryptocurrencies - like Polkadot, Solana, Avalanche and Cardano - use a PoS consensus mechanism. In a PoS consensus mechanism, you ‘stake’ your crypto to earn a reward. It's very similar to mining crypto as part of a PoW mechanism - a network participant gets selected to add the latest batch of transactions to the blockchain and earn crypto in exchange.

There is an argument that because you are creating newly generated coins, you should not be taxed on the receipt of the coins - the argument uses the analogy of creation of other property (such as a manufacturer creating a computer) who would not be taxed on the value of the computer following the completion of manufacturing, but only once sold to an eventual customer. 

DeFi staking

On the other hand, DeFi lending lets you lend your crypto through a given protocol - like Aave - and receive interest in the form of crypto from borrowers on the other side of the transaction. DeFi lending is much more comparable to a typical lending arrangement whereby you provide capital in return for interest, with the interest rewards being taxable as income, although it depends on the way the protocol works. If you earn new tokens, Income Tax is likely to apply. Whereas if you deposit capital and receive tokens (LP tokens) that accrue value in return, this may be viewed as a crypto to crypto trade and therefore it is more likely Capital Gains Tax would apply.

IRS staking guidance

The IRS hasn't released any official guidance on staking rewards and how they're taxed. However, for a long time it was presumed that as proof of stake rewards were similar to mining rewards, they would be taxed in a similar vein. As above, mined coins are subject to Income Tax based on the fair market value at the point you receive them. However, a recent court case filed against the IRS suggests this might not be the case in the future.

A couple who staked Tezos attempted to claim a refund on their staking rewards for 2019 - which the IRS denied with no clarification. So they filed against the IRS and were offered a refund in December 2021. The couple have refused the refund, stating that they wish to set the legal precedent that staking rewards from PoS should be viewed as the creation of new property and subsequently only subject to Capital Gains Tax on disposal, not Income Tax on receipt of the newly created tokens. Since then, the US District Court for the Middle District of Tennessee sided with the IRS, dismissing the Jarretts' case as moot - but Jarretts plan to appeal, so watch this space. The bottom line is crypto tax can get very complicated and guidance can change fast!

Crypto margin trading, futures and other CFDs

The tax for crypto trading such as margin trading, futures and other CFDs is a little complicated, so let's break down the taxes on crypto trading.

DeFi crypto taxes USA

DeFi is still pretty new and it's constantly evolving, offering investors new opportunities to make money. All this to say, the IRS hasn't yet issued clear guidance on specific DeFi transactions and how they're seen from a tax perspective.

Don't jump for joy just yet. That doesn't mean you won't pay any taxes on your DeFi transactions. Instead, investors need to look at the current guidance on crypto transactions and infer the likely tax on their DeFi transactions.

So you'll still pay either no tax, Income Tax, or Capital Gains Tax on your DeFi transactions. At a basic level, the tax you'll pay depends on whether you're seen to be 'earning' crypto or 'disposing' of crypto based on the current guidance. Remember, earning crypto is anytime you receive new coins or tokens as a result of your transactions. This would cover many DeFi transactions. Meanwhile, when you're trading, selling, or spending tokens on DeFi platforms - this would be subject to Capital Gains Tax.

It is important to discuss your DeFi transactions with an accountant as there is no formal guidance from the IRS just yet. The following are potential tax treatments that may apply however we are yet to get confirmation from the IRS:

• Earning interest from DeFi protocols: Income Tax if it's new tokens. Capital Gains Tax if you receive LP tokens that accrue value.
• Borrowing from DeFi protocols: Capital Gains Tax if you receive tokens in exchange for collateral.
• Paying interest in DeFi protocols: No tax unless you're paying in crypto, in which case potential Capital Gains Tax, although this could be an investment expense and tax deductible, depending on why you borrowed crypto.
• Staking on DeFi protocols: Income Tax if you receive new tokens. Capital Gains Tax if you receive LP tokens that accrue value.
• Yield farming DeFi protocols: Income Tax if you receive new tokens. Capital Gains Tax if you receive LP tokens that accrue value.
• Earning liquidity tokens from DeFi protocols: Income Tax or Capital Gains tax depending on whether you're earning new coins or you receive LP tokens that accrue value.
• Adding liquidity to liquidity pools: Capital Gains Tax, depending on whether you receive LP tokens in exchange for your liquidity.
• Removing liquidity from liquidity pools: Capital Gains Tax, depending on whether you receive LP tokens in exchange for your liquidity.
• Earning through play/engage to earn DeFi protocols: Income Tax.
• Profits from DeFi margin trading and options protocols: Capital Gains Tax.

We recommend speaking with an experienced crypto accountant for clear guidance on DeFi tax to remain compliant, you can also learn more in our US DeFi tax guide.

NFT taxes

We have a dedicated guide on NFT taxes, but the IRS has recently released new guidance on the tax treatment of NFTs, so we'll cover it here too.

Prior to the new guidance, NFTs were treated as any other crypto asset from a tax perspective, so short-term or long-term Capital Gains Tax would apply when you disposed of an NFT by selling or trading it.

And that still remains true, however, under the new guidance NFTs may be deemed collectibles and taxed as such. Collectibles are still subject to short-term and long-term Capital Gains Tax, but at a higher rate of 28% vs. a maximum of 20% for other capital assets. So, under the new guidance which is immediately applicable, if you sell an NFT you've held for more than one year that is deemed a collectible by the IRS, then you'll pay 28% tax on any gain from that transaction.

However, not all NFTs are collectibles, and the IRS recognizes this. The IRS will be issuing additional guidance, but states that "until additional guidance is issued, the IRS intends to determine whether an NFT is treated as a collectible by using a “look-through analysis".

In other words, the IRS will "look through" the NFT to the underlying asset it represents to determine whether it's a collectible or not. Collectibles already have specific guidance under Section 408(m)(2) of the tax code, and the following assets are deemed collectibles for tax purposes:

• Any work of art,
• Any rug or antique,
• Any metal or gem (with limited exceptions),
• Any stamp or coin (with limited exceptions)
• Any alcoholic beverage, or
• Any other tangible personal property that the IRS determines is a "collectible" under IRC Section 408(m).

In their own example in the current guidance, the IRS states, "an NFT is treated as a collectible if the NFT's associated right or asset falls under the definition of collectible in the tax code. For example, a gem is a collectible under section 408(m); therefore, an NFT that certifies ownership of a gem is a collectible."

So, you should use the existing guidance and guidance on collectibles to determine the tax treatment of your NFT as long-term gains from NFTs held over a year may be taxed at a higher rate of 28%.

If your NFT is not deemed a collectible, the tax rules for crypto we've already covered apply. Although, there is a specific exception that NFT creators who are minting and selling NFTs - like an artist selling paintings - may instead pay Income Tax on their earnings. In brief:

• Selling or trading NFTs: Capital Gains Tax, but the higher 28% tax may apply for NFTs deemed collectibles.
• Buying NFTs: No tax if you buy with fiat currency. Buying an NFT with crypto would be seen as a taxable crypto to crypto trade.
• Minting/creating your own NFT: No tax - though minting costs may be able to be added to your cost basis.
• Selling NFTs you created: Income Tax.

DAO Taxes

A recent trend in crypto is the growth of DAOs (Decentralized Autonomous Organization). They are effectively member-owned communities without central leadership. It’s an organizational structure that allows stakeholders to make governing decisions without the need for any kind of centralized authority. Instead of a small Board of Directors making decisions about the company, DAOs enable the community of token holders (members) to vote on the future of the organization.

A good example of this is Uniswap. Holders of UNI tokens vote on issues relating to the protocol - for example, how transaction fees are used and what new features to add.

Members of a DAO can profit from the DAO in various ways. For example, they might receive a share of the profits which result from the activities of the DAO or they might sell their DAO tokens to investors. 

The IRS has no specific guidance on the taxation of DAOs. However, given the DAO is not a registered entity in any jurisdiction and has no central control, it cannot pay taxes itself. It’s therefore most akin to a flow-through entity, which is a business entity that passes any income it makes straight to its owners, shareholders, or investors. Under this interpretation, any income passed on to the members of the DAO would likely be subject to Income Tax, and sale of DAO tokens which have appreciated since acquiring them would be subject to capital gains taxes.

Aside from the lack of federal guidance, the US state of Wyoming has formally recognized DAOs as a form of limited liability corporation (DAO LLC). The appropriate legal recognition of DAOs is an important step to understanding the flow-on tax characterization of a DAO. 

Do you pay tax when spending crypto?

Thinking of heading to Home Depot to pay for your renovations in Bitcoin? You might be in for a surprise tax bill because spending your crypto on goods and services is subject to Capital Gains Tax.

Keep records of crypto transactions for taxes

You need to keep detailed records of your crypto transactions. The IRS says taxpayers need to maintain records that are sufficient to establish the position taken on their tax return. Therefore as a minimum, you should keep records of your crypto transactions including:

• The date of your transactions.
• The fair market value of your crypto in USD the day you acquired it.
• The fair market value of your crypto in USD the day you disposed of it.
• The capital gain or loss you made from each transaction.
• What the transaction was and the parties involved.
• Receipts of purchase and sale.
• Records of transfers and transactions from all your crypto wallets and exchanges.

The IRS can audit tax returns from up to six years ago, so best practice is to keep these records for at least six years to ensure you have the information you need should you face an audit. This is easy to do with a crypto tax app like Koinly.

When do you have to pay taxes on crypto?

The US financial year runs from the 1st of January to the 31st of December each year, so the current financial year is 2022. You need to report your crypto taxes for the financial year by the 15th of April the following year as part of your annual tax return, so the next tax deadline is the April 15, 2023. As this falls on a weekend and there is the District of Columbia's Emancipation Day holiday the following Monday - the official tax deadline for 2022 is Tuesday April 18, 2023. For US expats, this deadline is June 15, 2023.

If you filed for an extension to file your taxes using Free File or Form 4868, you'll automatically have an extension until the 16th of October. Learn more about how to file an IRS tax extension.

How to do crypto taxes

There are 3 simple steps to doing your crypto taxes:

1. Identify your taxable transactions and the kind of tax that applies
2. Calculate your gains, losses, and income.
3. File your preferred way, whether that's using a tax app, using paper forms, or through your accountant.

We've covered the existing IRS crypto tax guidance and which tax applies to which transactions in our guide already, so let's take a look at how to calculate and how to file with paper forms, tax apps like TurboTax & TaxAct, and more.

How to calculate your crypto taxes

Calculating your crypto taxes - especially if you trade at volume - is time-consuming. You can do it all manually, or you can use a crypto tax calculator like Koinly to save you hours.

If you want to calculate your crypto taxes manually, follow these steps:

1. Identify all your taxable crypto transactions for the entire financial year you're reporting on.
2. Identify which transactions are subject to Income Tax and which transactions are subject to Capital Gains Tax.
3. Identify the cost base for each transaction using your chosen accounting method.
4. Calculate your subsequent capital gains and losses, income and expenses.

You'll then need to report all taxable crypto disposals, the proceeds from your disposal and the subsequent capital gain or loss to the IRS (yes, every single one), as well as any income from crypto.

It's enough to exhaust even the most enthusiastic of mathematicians. But there is an alternative - use Koinly and save hours.

How to report crypto on taxes

You file your crypto taxes with your annual tax return - but you'll need a few other forms to do so. You can see our complete guide on filing your crypto taxes with the IRS, but in short:

Report crypto disposals, capital gains and losses on: Form Schedule D (1040) and Form 8949.

Report crypto income on: Form Schedule 1 (1040) or Form Schedule C (1040).

You can do this with paper forms or through a tax app like TurboTax or TaxAct. We'll walk you through both.

How to use a crypto tax app like Koinly

Don't get stuck in the busywork. Don't get it wrong. Don't rely on your accountant to know where to look. Use Koinly crypto tax software to generate crypto tax reports. Here's how easy it is:

1. Sign up for a free Koinly account

It only takes a minute!

2. Select your base country and currency

In this instance, the United States and United States Dollars.

3. Select your accounting method

By default, Koinly selects FIFO (First In Last Out) as the accounting method for the USA. But we also support HIFO and LIFO for our US users.

4. Connect Koinly to your wallets, exchanges or blockchains

Koinly crypto tax software integrates with more than 300 crypto exchanges, wallets and blockchains. (See all) If you can't find yours, let us know - we're always adding more.

5. Make a coffee - let Koinly crunch the numbers

Koinly will calculate your cost basis for each crypto asset like ETH, ADA and Bitcoin and taxes them accordingly. Koinly will calculate each capital gain or loss from your disposals, as well as your crypto income and expenses.

6. Ta-da! Your data is collected and your full tax report is generated!

Head to the tax reports page in Koinly and check out your tax summary. This includes your net capital gains, other gains, income, costs, expenses and any gifts, donations or lost crypto.

7. To download your crypto tax report, upgrade to a paid plan from $49 per year

Download what you need, when you need it. For US investors, Koinly has the IRS Schedule D and Form 8949 for capital gains and losses, as well as the Complete Crypto Tax Report.

8. Send your report to your accountant, or complete your IRS submission yourself using a tax app like TurboTax

Koinly also generates reports for TurboTax and TaxAct - so all you need to do is upload your Koinly crypto tax report to your chosen tax app file your taxes in minutes. Let's look at how.

How to file your crypto taxes with TurboTax

We've got a guide on filing your crypto taxes with TurboTax if you want step by step instructions or here's a quick video tutorial on filing crypto taxes with TurboTax:

How to file your crypto taxes with TaxAct

Here's our guide on filing your crypto taxes with TaxAct. But in summary:

1. Create a Koinly account, sync your wallets and exchanges and let Koinly generate your tax reports.
2. Download your IRS Report Form 8949 and Schedule D from the tax reports page in Koinly.
3. Head over to your TaxAct account and follow the steps there to report your crypto transactions where you can just upload your Koinly tax reports.

How to file crypto taxes with paper forms

Still sticking to pen and paper filing? No worries, Koinly can help. Read our in-depth guide on IRS crypto tax forms or follow these steps:

1. Complete Form 8949 with all your taxable crypto disposal transactions. (Koinly does this for you).
2. Report your net capital gains and losses from Form 8949 on Form Schedule D. This includes your short-term and long-term capital gains and losses.
3. If you have crypto income from airdrops, forks, liquidity pools, bonuses and so on, you’ll need to complete Schedule 1. If you’re self-employed or operating a crypto business and have crypto income, use Schedule C instead.
4. Complete your Individual Tax Return Form 1040 and attach the other forms you’ve completed. File this with the IRS and you're done.

Let's look at these tax forms in some more depth, as well as a couple of others you may need to be familiar with.

View Report

Form 8949

WHO NEEDS TO FILE THIS?

Anyone who has capital gains or losses during the financial year.

WHAT INFORMATION IS NEEDED?

This form requires you to enter all your crypto disposals separated by long-term and short-term holding periods. If you are using Koinly, you can generate a pre-filled version of this form in one click.

View Report

Schedule D

WHO NEEDS TO FILE THIS?

Anyone who has capital gains or losses during the tax year.

WHAT INFORMATION IS NEEDED?

This form is a summary of your Form 8949 and contains the total short term and long term capital gains.

View Report

Schedule 1 - Form 1040

WHO NEEDS TO FILE THIS?

Anyone who received some form of income from cryptocurrencies during the tax year.

WHAT INFORMATION IS NEEDED?

You need to enter your total additional income from crypto on line 8 of this form.

View Report

FBAR

WHO NEEDS TO FILE THIS?

Anyone who had fiat currency or specified foreign financial assets worth over $10,000 in combined value in a non-US exchange - at any point during the tax year. Note that if you are only transacting with crypto and stablecoins then you don't need to fill in this form.

WHAT INFORMATION IS NEEDED?

Details about your foreign exchange accounts along with the maximum fiat value you had on it during the year.

View Report

FATCA

WHO NEEDS TO FILE THIS?

Anyone who had fiat currency or specified foreign financial assets worth over $50,000 on the last day of the tax year or over $75,000 at any point during the tax year in a non-US exchange. Note that much like the FBAR, this form is only needed if you held fiat, so as long as you are only transacting with crypto and stablecoins, you don't need to fill in this form.

WHAT INFORMATION IS NEEDED?

Details about your foreign exchange accounts along with the maximum fiat value and ending balance during the year.

How to avoid crypto tax in the US

You can't outright avoid crypto tax in the US - not without breaking the law and facing some harsh penalties! But you can reduce your crypto tax bill with some tax tips. We've got a complete guide on avoiding crypto tax in the US, but in summary:

HODL

Make the most of lower long-term Capital Gains Tax rates by HODLing your assets for more than a year.

Utilize tax deductions

Utilize tax deductions. Going for the standard tax deduction isn't always the best way to reduce your tax bill depending on your individual circumstances. Common tax deductions include the child tax credit, medical expenses deduction and 401k contributions deduction.

You may even be able to claim your Koinly plan as a tax preparation fee deduction - provided you're self-employed and not a W2 employee.

Know the CGT allowance

Earning less than $41,676 a year as a single taxpayer in 2022? No Capital Gains Tax for you. If you're married and filing jointly, this allowance is $83,351. If you're the head of the household, this is $55,801.

Offset losses against gains

You can offset capital losses against capital gains with no limit in the US. You can even offset up to $3,000 of capital losses against your ordinary income. Carry over any losses you don't use to offset against future gains.

Track and harvest unrealized losses

Unrealized losses? Harvest them, including any worthless NFTs, so you can offset them against your net capital gain. In the US, the wash-sale rule currently only applies to securities - which crypto is not classified as, so investors can sell their crypto at a loss and buy them back right after. This legal loophole allows them to create artificial losses to reduce their overall tax bill. This is known as tax loss harvesting. Make the most of this legal loophole while you can as it's likely to be closed soon!

Gift and donate

Gifting crypto is tax free under $16,000 thanks to the annual gift tax exemption. You can use this to make the most of lower incomes in your household, giving you a lower total tax bill for everyone in your household.

Meanwhile, donating crypto is tax deductible, so find a worthy cause. A charity must have 501(c)3 status if you plan to deduct your donation on your federal taxes. You'll need to check your chosen charity's 501(c)3 status with the IRS' exempt organization database. If you're gifting more than $500, you'll also need to fill out Form 8283 with your annual tax return. As well as this, the IRS is clear that if you're donating more than $5,000 in crypto - you'll need a qualified appraisal in order to apply a deduction.

Invest in IRAs

Investing in your retirement is a great way to avoid crypto tax. HODL your assets long-term, tax free.

Invest in opportunity zone funds

Do good for your community and reduce your taxes by investing in opportunity zone funds. If you leave your investment for more than 5 years, you'll reduce your tax bill by up to 10%.

Pick the right cost basis method

Cost basis matters. FIFO, LIFO, HIFO and Spec ID all make a huge impact on your tax bill and you can pick from any of them. See which works best for your crypto taxes.

What happens if you don't report cryptocurrency on taxes?

The IRS does not look kindly on those who avoid crypto taxes and they've made it clear that crypto is a key focus for 2023. Tax evasion and tax fraud are both federal offences in the US - with penalties of up to $100,000 in fines or 5 years in prison. Learn more in our crypto tax evasion guide.

FAQS

Still got questions? We got you. Here's some of our most frequently asked questions.

Is swapping crypto taxable?

Yes. Swapping one cryptocurrency for another is a taxable event as you're disposing of a crypto asset. Any gain is subject to short or long-term Capital Gains Tax depending on how long you've held your crypto.

Is converting crypto a taxable event?

Yes, like above, converting crypto into another crypto is a taxable event. It's a disposal from a tax perspective and any gain subject to Capital Gains Tax.

When do you pay tax on crypto?

You'll pay Capital Gains Tax on any gain you make whenever you sell, swap or spend crypto. You'll pay Income Tax whenever you're seen to be earning crypto - for example, staking or mining.

What is virtual currency considered for tax purposes?

Virtual currency, including crypto, is viewed as a property from a tax perspective and that dictates its tax treatment.

How much tax on crypto gains?

You'll pay up to 37% in tax on short-term crypto gains and up to 20% in tax on long-term crypto gains.

The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial or taxation adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Koinly is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.