Understanding crypto taxes
Understanding crypto taxes
How is crypto taxed in the U.S.? Your guide to this tax season
Table of Contents
cryptocurrency tax guide
It’s crucial for U.S. taxpayers who deal in cryptocurrency to be aware that all sales, conversions, payments, and profits must be reported to the IRS, as well as state tax authorities if necessary. The tax ramifications of each of these activities may vary. We’ll explain in this guide when your cryptocurrency activities are subject to taxes and how they may affect your overall tax status. Let’s begin.
Just a Quick Heads-Up Before We Begin…
To be clear, Coinbase does not offer tax advice. This article only represents our interpretation of the IRS’s most recent guidance regarding cryptocurrency taxes; it may change in the future. Nothing on this page should be interpreted as personalized tax advice or personal advice. Nevertheless, we think it’s critical to give our clients useful, understandable information. Therefore, for the most accurate advice, we strongly advise consulting a qualified tax professional if you have questions about your particular tax situation.
Do I Owe Crypto Taxes?
Here’s What You Need to Know
You may be wondering if you owe cryptocurrency taxes if you deal with cryptocurrencies in the United States. How you use your cryptocurrency will determine the answer. Crypto is categorized as a digital asset by the IRS and is subject to taxation similarly to stocks and bonds. This implies that, depending on the circumstances, your cryptocurrency transactions may result in income taxes or capital gains.
Knowing which cryptocurrency activities are taxable and which are not is crucial for determining whether you owe anything. Let’s dissect everything:
Crypto Activities That Are Not Taxable
Here are some situations where you don’t owe crypto taxes:
Buying and Holding Crypto: Just purchasing crypto with cash and holding onto it isn’t a taxable event. Taxes only apply when you sell and your gains are “realized.”
Donating Crypto to Charity: Donating to a qualified tax-exempt organization (like a 501(c)(3) non-profit) can qualify you for a charitable tax deduction.
Receiving Crypto as a Gift: If someone gifts you crypto, you generally don’t owe taxes until you sell it or use it in a way that creates a taxable event (like staking or selling).
Giving Crypto as a Gift: You can gift up to $18,000 per person in 2024, and $19,000 in 2025, without triggering gift taxes. If you go over the limit, you’ll need to file a gift tax return—but most people won’t actually owe tax on it.
Transferring Crypto Between Wallets: Moving crypto between wallets or exchanges you personally own is not taxable. You also retain your original cost basis and acquisition date, which helps when you eventually sell.
Crypto Events That Are Taxable as Capital Gains
These activities are taxable under capital gains rules:
Selling Crypto for Cash: If you sold crypto for more than you paid, the gain is taxable. If you sold at a loss, you may be able to deduct the loss on your tax return.
Swapping One Crypto for Another: Trading BTC for ETH? That counts as a sale. You’ll owe taxes if the crypto you traded was worth more than what you originally paid for it.
Spending Crypto on Products or Services: Using crypto to pay for things—like buying a pizza—can trigger a capital gains tax. Essentially, it’s like selling your crypto first, then using the proceeds.
Crypto Transactions That Are Taxed as Income
Some forms of crypto earnings are treated as ordinary income:
Getting Paid in Crypto: If your employer pays you in crypto, it’s treated like a regular paycheck and taxed according to your income tax bracket.
Accepting Crypto for Goods or Services: Running a business or freelance gig? If someone pays you in crypto, you must report that income to the IRS.
Crypto Mining: Mined crypto is taxed as self-employment income. The IRS taxes you based on the fair market value of the coins at the time you received them.
Staking Rewards: Rewards earned from staking are also taxable. You’re taxed based on the value of the crypto on the date you received it. Special note: For staked ETH, the income becomes taxable when users gain access to withdraw or control those rewards—even if they don’t actually unstake.
Earning from Holding Assets: Some platforms offer rewards just for holding crypto, like USD Coin or cbETH. These earnings are considered taxable income.
Receiving Crypto from a Hard Fork: Tax rules for hard forks vary. You’ll owe taxes depending on when you gain access and how you use the new tokens. Always check the latest IRS guidance on this.
Getting Airdropped Tokens: Free tokens received from an airdrop? That’s income, and it’s taxable. You must report the fair market value on the day you receive them.
Other Crypto Incentives: Whether it’s $5 in bitcoin from a referral program or rewards from learning campaigns, any incentive you receive in crypto must be reported as income.
How Much Will I Owe in Crypto Taxes?
You may be wondering, “How much will I owe in crypto taxes?” if you’ve been experimenting with cryptocurrency and discovered that some of your transactions are taxable. How you acquired or used your digital assets will determine the answer. Let’s dissect it so you know what you may be owed and how to maintain compliance.
Estimating Your Crypto Tax Bill
You must comprehend the distinction between cryptocurrency income and capital gains or losses in order to calculate your overall tax obligation. Accurately calculating them is essential to avoiding IRS issues because each is taxed differently.
What Counts as Crypto Income?
In the U.S., income from cryptocurrency is taxed similarly to your regular salary or wages. This includes earnings from:
Mining
Staking
Airdrops
Referral rewards
Even though these earnings might not have taxes automatically withheld (unlike your paycheck), you’re still required to report them. Your income tax rate will depend on your tax bracket — and keep in mind, high crypto earnings could push you into a higher bracket, meaning more taxes owed.
💡 Pro Tip: Stay up to date by checking the latest IRS guidance at IRS.gov.
How to Calculate Capital Gains or Losses on Crypto
If you’ve sold, traded, or spent your crypto, you may have a capital gain or capital loss. To figure this out, you’ll need to calculate your cost basis — the original value of your crypto.
Understanding Cost Basis
Your cost basis is typically what you paid when you bought the crypto. If you earned the crypto (like from mining), your cost basis becomes the fair market value at the time you received it.
If you received crypto as a gift, things get a bit more complex — your cost basis could be based on the giver’s original value or the market price when you received it, depending on whether you sell it at a gain or a loss.
Once you know your cost basis, subtract it from your selling price. The result is either a:
Capital Gain (if you sold for more than your basis)
Capital Loss (if you sold for less)
Short-Term vs. Long-Term Capital Gains in Crypto Taxes
The length of time you held your crypto affects how much tax you’ll owe:
Short-term capital gains (crypto held for less than a year) are taxed at your regular income tax rate.
Long-term capital gains (held for more than a year) are taxed at lower rates: 0%, 15%, or 20%, depending on your income.
Additionally, high earners may face an extra 3.8% Net Investment Income Tax on gains.
💡 Key Tip: Holding your crypto longer than 12 months before selling can significantly reduce your crypto taxes.
When Are Crypto Taxes Triggered?
A taxable event happens when you dispose of your crypto. This includes:
Selling crypto for cash
Converting one crypto to another (e.g., BTC to ETH)
Using crypto to buy goods or services
If you’re just holding, there’s no taxable event — gains are only taxed once they’re realized.
Using Capital Losses to Your Advantage
If you sold your crypto at a loss, don’t panic — it could actually help lower your tax bill.
You can use your capital losses to offset gains from other crypto or even from stock sales. This can reduce your total taxable income.
If your losses exceed your gains, you can use up to $3,000 to offset other types of income, like your salary. Any leftover losses can be carried forward to future tax years.
FAQs
1. Do I owe crypto taxes?
Cryptocurrency is classified by the IRS as a digital asset, so most transactions—sales, conversions, payments, and income—can trigger either capital gains or ordinary income tax liabilities. Whether you owe depends entirely on how you’ve used your crypto (e.g., merely holding it vs. selling or spending it) .
2. Which crypto activities are not taxable?
You generally do not owe taxes when you:
Buy and hold crypto without selling it
Give or receive crypto as a gift (within IRS gift limits)
Donate crypto directly to a qualified charity
Transfer crypto between your own wallets or exchanges
These actions are non‐taxable events until you dispose of the asset in a way that realizes gains or income.
3. Which crypto events are taxable as capital gains?
Capital gains rules apply when you:
Sell crypto for fiat (cash) at a profit (or loss)
Swap one cryptocurrency for another (e.g., BTC → ETH)
Spend crypto on products or services (treated as a sale at market value)
Profits are taxed at short‑term or long‑term capital gains rates based on your holding period.
4. Which crypto transactions are taxed as income?
Certain crypto activities are treated as ordinary income at their fair market value when received, including:
Payroll or freelance payments in crypto
Mining rewards (self‑employment income)
Staking rewards (taxed when you gain withdrawal rights)
Airdrops and referral or learning‑program incentives
These amounts flow onto your income tax return and are taxed at your regular bracket.
5. How much will I owe in crypto taxes?
Your total liability is the sum of:
Crypto Income: taxed like wages, based on your marginal rate
Capital Gains/Losses: calculated by subtracting your cost basis (what you paid or the FMV when received) from your sale proceeds, then applying short‑term (ordinary rate) or long‑term (0%, 15%, or 20%) rates
You can offset gains with losses (up to $3,000 per year against other income), and carry forward excess losses to future years.
The Bottom Line
Although navigating crypto taxes can be difficult, investors can maximize their returns while remaining compliant if they have a clear understanding of how transactions are classified and taxed. Every activity, including trading, staking, and hoarding, has tax ramifications, so it’s critical to maintain thorough records and seek advice from a tax professional. Being informed is not only a good idea, but also a requirement as the regulatory environment changes.
