How the IRS Treats Cryptocurrency: Understanding Taxable Events
The IRS classifies cryptocurrency as property, not currency, meaning every transaction can trigger tax consequences. Here are key taxable events to track:
- Trading crypto for fiat (e.g., selling Bitcoin for USD)
- Exchanging cryptocurrencies (e.g., swapping ETH for SOL)
- Receiving crypto as payment for goods/services
- Earning staking rewards or mining income
- Receiving airdrops/hard forks (treated as ordinary income)
2024 Crypto Tax Rules Every Investor Must Know
Stay compliant with these critical regulations:
- Capital Gains Tax: Short-term (held under 1 year) taxed at 10-37%; long-term rates range from 0-20%
- Income Tax: Mining rewards, staking income, and crypto payments taxed as ordinary income
- $600 Reporting Rule: Exchanges must report user transactions exceeding $600 via Form 1099-B starting 2024
- FBAR/FATCA: Offshore crypto holdings over $10k require additional reporting
Step-by-Step Guide to Reporting Crypto Taxes
- Calculate gains/losses for each transaction using FIFO or specific identification method
- Report capital gains on Form 8949 and summarize on Schedule D
- Declare crypto income on Schedule 1 (Form 1040) or Schedule C for business activities
- File Form 8938 if foreign crypto assets exceed $50k
4 Costly Crypto Tax Mistakes to Avoid
- ❌ Ignoring small transactions or “lost” wallets
- ❌ Using incorrect cost basis calculations
- ❌ Mixing personal and business crypto accounts
- ❌ Missing quarterly estimated tax payments for large gains
FAQs: Crypto Taxes Made Simple
Q: Are NFT sales taxable?
A: Yes – treated as collectibles with up to 28% capital gains tax.
Q: What if I didn’t report crypto taxes in previous years?
A: File amended returns using Form 1040-X to avoid penalties up to 75% of owed taxes.
Q: How long should I keep crypto records?
A: Maintain transaction logs, wallet addresses, and tax forms for 7 years.
Q: Can I deduct crypto losses?
A: Yes – up to $3,000 annually against ordinary income, with excess carried forward.
Pro Tip: Use IRS-approved software like CoinTracker or TurboTax Crypto to automate calculations and generate audit-ready reports.
