TokenTax's Guide to Cryptocurrency Taxes
Here you can learn everything you need to know about crypto taxes. This information is mostly geared towards U.S. filers, but scroll down to see our guides for crypto tax in many other countries.
New to crypto tax? Start here.
Crypto Tax Topics
- Crypto Tax Basics
- How To Do Your Crypto Taxes
- Calculating Your Crypto Taxes
- Reporting Cryptocurrency On Your Taxes
- Advanced Crypto Tax Situations
- Crypto 1099-Ks, Letters 6173/6174/6174-A, and CP2000 Notices
- How Does Crypto Tax Work in My Country?
Crypto Tax Basics
In the United States and in many other countries, cryptocurrency is taxed as property or as a capital asset.
How exactly is cryptocurrency taxed?
In most cases, you'll be realizing capital gain or loss on your crypto. For example:
You buy 1 BTC for $30,000.
Later, you sell this 1 BTC for $40,000.
When you sell this 1 BTC, you realize a capital gain of $10,000, which is taxed accordingly.
Income in crypto is taxed too — a bit differently from capital gains. Income can be many things, like mining, staking, earning interest, or being paid in crypto.
If someone pays you 0.5 ETH, and ETH is $400 each, that's $200 equivalent of income. You are taxed for this $200 of income per your income tax rates.
Likewise, if you stake crypto, you owe tax on the income you are receiving per the crypto's market value at time of receiving it.
Read this articles to learn more about how crypto is taxed and whether you need to file crypto taxes.
How To Do Your Crypto Taxes
When it comes time to do your crypto taxes, you'll need a way to automatically calculate your taxes on your crypto activity. Here's how cryptocurrency users are doing their taxes:
Cryptocurrency tax software
Cryptocurrency tax software automatically imports your exchange and DeFi transaction data. Then, using this data, it calculates your capital gains and income taxes. Then, you can create and download your tax forms.
Most crypto investors and traders use crypto tax software because they've made hundreds or thousands of trades across different exchanges. Unlike traditional brokers, crypto exchanges usually can't provide accurate tax forms, because accurate capital gains calculations require combined information from all exchanges you've used.
Taxes — whether crypto is involved or not — can be daunting, but we're here to help. In addition to our crypto tax platform, we're a full service accounting firm as well.
Our CPA team can file your tax return with crypto included, and we also have a team of cryptocurrency reconcilers who are equipped to handle even the most complicated of trading and DeFi situations.
Calculating Your Crypto Taxes
It's a good idea to learn how exactly taxes are calculated for crypto. That way, you know what kind of taxes to expect from your activities.
You should understand how capital gains are calculated, and how accounting methods can change how much tax you owe. Additionally, you should be aware that keeping an asset for a year without selling or exchanging it makes it a long-term holding, which is taxed at a lower rate.
Reporting Cryptocurrency On Your Taxes
Once you've understood how your cryptocurrency is taxed and you've calculated your capital gains, it's time to create your tax forms and file your taxes.
Cryptocurrency is included on your taxes
In the U.S. and similarly in other countries, crypto is reported much like stock sales. The main U.S. tax form for cryptocurrency is the Form 8949, which is then included with the Schedule D.
Via these forms, you report your capital gains — or losses. You may also want to file an FBAR if your balances on foreign exchanges exceeded $10k equivalent at any point of the year.
Even if you only had losses, it's important to file your crypto taxes
Even if you had a capital loss for the year, it's important to file your crypto taxes. Here's why:
The IRS expects you to report your sales and exchanges, even if you had an overall loss. If you don't report but they have evidence of your transactions, they may assume you have a capital gain and thus ask for tax payment.
You can use your losses to deduct from your income (up to $3k), to offset capital gains in other assets, or to carry forward to future years to offset capital gains then.
It's in your best interest to file your losses — if you have losses one year and gains the next year, you can save on your taxes by carrying losses forward.
You may need to file an FBAR
The FBAR is a disclosure form that is filed with FinCEN (a government body separate from the IRS) to report foreign holdings of over $10k. Normally the FBAR applies to things like offshore bank accounts, but it may apply to crypto exchanges as well.
Advanced Crypto Tax Situations
For crypto experts and experienced investors: learn how taxes work for advanced crypto situations like staking, margin trading, and DeFi.
Decentralized finance is a new exciting field of crypto, and taxation applies to any profits you make with DeFi. Depending on the protocol, you may recognize capital gains or income from your activities. You should also be aware of some advantages — and some things to watch out for — when considering how your DeFI activity will be taxed.
Because NFTs themselves are crypto assets, and are typically purchased with cryptocurrencies, buying, selling, or trading an NFT is typically considered a crypto-to-crypto trade by the IRS.
Tax loss harvesting
Tax loss harvesting is selling off held assets in order to recognize the capital loss. Capital losses offset capital gains — even non-crypto gains — and you can also deduct losses from your income or carry them forward to future years.
Margin trading taxes
If you've been margin trading — using leverage or trading futures — then you need to account for your capital gains or losses on these platforms. TokenTax supports margin trading for a variety of exchanges, from BitMEX and Bybit to Bitfinex and Kraken.
Crypto mining and staking
You owe tax on income from mining and staking — and there are different reporting expectations depending on whether you're doing so as a hobby or as a professional operation.
Crypto 1099-Ks, Letters 6173/6174/6174-A, and CP2000 Notices
You may receive notices from your exchange or from the IRS regarding taxation of your crypto activity. Such notices include the Form 1099-K, Letters 6173, 6174, 6174-A, and the CP2000 notice. If you've been trading crypto, it's a good idea to know what these mean and what action you may have to take.
How Does Crypto Tax Work in My Country?
This guide primarily has applied to U.S. filers, but we also have information on how many other countries also tax cryptocurrencies.