## Understanding Crypto Tax Law in the US
The IRS classifies cryptocurrency as **property** for tax purposes, meaning every transaction can trigger a taxable event. Whether you’re selling Bitcoin for USD, trading Ethereum for Solana, or earning crypto through staking, the U.S. crypto tax law requires you to report gains or losses. Failure to comply could result in penalties, audits, or legal action.
## Key IRS Guidelines for Crypto Taxes
1. **Cryptocurrency Is Taxable Property**: Gains from selling, trading, or spending crypto are subject to capital gains tax.
2. **Taxable Events Include**:
– Selling crypto for fiat (e.g., USD)
– Trading one cryptocurrency for another
– Using crypto to purchase goods/services
– Earning crypto via mining, staking, or interest
3. **Report All Transactions**: Use Form 8949 and Schedule D to detail capital gains/losses.
4. **Cost Basis Matters**: Calculate gains by subtracting the original purchase price (plus fees) from the sale price.
5. **Foreign Reporting**: Holdings in offshore exchanges may require FBAR or Form 8938.
## How to Calculate Your Crypto Taxes
Follow these steps to stay compliant with U.S. crypto tax law:
1. **Track All Transactions**: Use tools like CoinTracker or Koinly to aggregate data from wallets/exchanges.
2. **Determine Cost Basis**: Identify the acquisition date and price for each asset.
3. **Calculate Gains/Losses**: Apply FIFO (First-In, First-Out) or specific identification methods.
4. **Report Accurately**: File Form 8949 for capital gains and Schedule 1 (Form 1040) for crypto income.
## Common Crypto Tax Mistakes to Avoid
– **Ignoring Small Transactions**: Even $10 in crypto rewards from a faucet must be reported.
– **Misreporting Cost Basis**: Overestimating profits by forgetting fees or transfer costs.
– **Overlooking Forks/Airdrops**: These are taxable as ordinary income at fair market value.
– **Failing to Report Foreign Accounts**: Penalties for unreported offshore holdings can exceed $10,000.
## Frequently Asked Questions (FAQ)
**Q: Is cryptocurrency taxed in the US?**
A: Yes. The IRS treats crypto as property, so capital gains taxes apply to sales, trades, and purchases.
**Q: Do I pay taxes if I hold crypto without selling?**
A: No—only when you sell, trade, or earn crypto. Holding long-term (over 1 year) qualifies for lower tax rates.
**Q: How does the IRS track crypto transactions?**
A: The IRS uses Form 1099-K from exchanges, blockchain analytics, and subpoenas to identify non-compliance.
**Q: Can I deduct crypto losses?**
A: Yes. Capital losses offset gains and up to $3,000 of ordinary income annually.
**Q: What if I made errors on past tax returns?**
A: File an amended return (Form 1040-X) to avoid penalties. Voluntary disclosures may reduce fines.
