How To Report Cryptocurrency On Taxes
In this comprehensive guide, we outline step-by-step how to file your crypto taxes.
Table of Contents
- How to report crypto on your tax return
- The Form 8949 for cryptocurrency tax reporting
- How to submit Form 8949 via the Form 1040 Schedule D
- The Form 1040 Schedule 1
- How to report crypto mining, staking, hard forks and interest income
- How to pay taxes on cryptocurrency
- Net investment capital tax
- Capital losses on crypto, deduction limits and carry-over losses
- Do you need help calculating and preparing your crypto taxes?
This article is part of TokenTax's Cryptocurrency Tax Guide.
Paying crypto taxes may seem daunting at first. But in the United States, you report crypto taxes just like how you report other capital assets like stocks and real estate. Remember that, for tax purposes, crypto is treated as property.
There are 5 basic steps involved in filing crypto taxes:
- Calculate your crypto taxes. You need to know how much your capital gains or losses are.
- Once you've calculated your crypto taxes, create the tax form for cryptocurrency: the Form 8949.
- Include your totals from your Form 8949 on your Form Schedule D as indicated on the form.
- If you have crypto income, include the crypto income totals on the 1040 Schedule 1. If you are engaging in crypto activities as self-employed, use the Schedule C instead.
- Complete the rest of your tax return, file, and you’re done.
In the U.S., you are required to report your cryptocurrency taxes via the IRS Form 8949, Schedule D, and if necessary, the 1040 Schedule 1 and / or 1040 Schedule C. Below, we go over each tax form in detail, giving you all the info that you need to be able to file your crypto taxes.
The Form 8949 is the tax form used for cryptocurrency capital gains and losses.
Each sale of crypto during the tax year is reported on the 8949. If you had other non-crypto investments, they need to be reported on separate Form 8949s when you file your taxes.
In the section below, we explain each part of the Form 8949. __If the below seems daunting, don't worry — tax software for crypto will automatically fill out the entire form for you. __
First, you need to fill in the initial information at the top of the Form 8949. For the short term trades section, you will need to select check box A, B, or C in Part I:
- Short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS
- Short-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS
- Short-term transactions not reported to you on Form 1099-B
You will most likely select check box C, as crypto exchanges typically do not provide Form 1099-Bs. However, in the rare case where an exchange has provided you a 1099-B, you will want to check A or B.
You will then need to organize your calculations row-by-row with the details of each transaction:
- Description of property (Example: 1.5 BTC): This describes the asset that was sold, exchanged, or spent.
- Date acquired (MM/DD/YYYY): This is the day you purchased the crypto asset that you are using as your cost basis for the transaction.
- Date sold or disposed of (MM/DD/YYYY): This is the day you sold, exchanged, or spent the crypto asset.
- Proceeds: Your proceeds are the gross USD value of crypto sold, exchanged, or spent.
- Cost basis: Your cost basis is the gross USD value at which you acquired the crypto being sold, exchanged, or spent. This includes purchases in fiat currency or another crypto.
- Adjustment, if any, to gain or loss: This code describes the adjustment amount you enter in column G. Typically, you will not have any adjustments, but the IRS lists capital gain adjustments in their instructions if you need them. One example would be if you received a Form 1099 without cost basis and need to report your purchase prices to the IRS.
- Adjustment, if any, to gain or loss: This amount corresponds to the description code you entered in column F. Typically, you will not have any adjustments.
- Gain or (loss). Subtract column (e) from column (d) and combine the result with column (g) - This is your net capital gain or loss in USD for this particular transaction.
The below example shows a completed Form 8949 of short term sales of ETH, ZEN and ELF.
Next, you need to include your Totals in the aggregate boxes at the bottom.
- Total Proceeds are the sum of your transaction sales prices.
- Total Cost or other basis are the sum of your transaction acquisition prices.
- Total Adjustment, if any, to gain or loss. Typically, you will not have any adjustments. If you do have adjustments, the total would be reported here without any accompanying description.
- Total Gain or (loss) as the sum of your transaction capital gains or losses.
If you were trading large volumes of crypto, your cost basis and proceeds totals may seem larger than you expect. This is normal, as they are the sum of all cost basis / proceeds, i.e. you could trade $10,000 of BTC back and forth multiple times with little gain or loss and still have a large amount of total cost basis / proceeds.
Afterwards, you will repeat the same steps to populate the information for your long term trades in Part II of Form 8949.
In many respects, it may be easier to instead use crypto tax software and automatically export your transactions in whatever format you need. This way you can automatically create an export of your information into a template for upload into TurboTax or auto-fill a Form 8949 PDF and attach it to your tax return.
The Form 8949 is included with the Form 1040 Schedule D, which reports your overall capital gains and losses. On this form, you list your totals separately for short term and long term capital gains and losses.
The Schedule D also includes gains and losses from Schedule K-1s via businesses, estates, and trusts. Schedule D is also where you include capital losses carried forward from previous years as well as capital losses that you wish to carry forward to future years.
The tax Form 1040 Schedule 1 is used to report income made in crypto. At the top it also asks, “At any time during the last tax year, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” If you owned or transacted crypto in the last tax year, you should check “yes” even if you had no taxable events to report on the form.
In some cases, you recognize crypto as ordinary income to be reported on Schedule 1 rather than capital gains. Situations where crypto is recognized as income include crypto mining and staking, hard forks and airdrops, and crypto lending interest.
Total crypto income that you’ve received personally (i.e. not as a self employed person) is included in the Form 1040 Schedule 1 “Additional Income and Adjustments to Income” on line 8 "Other income."
Crypto tax software will calculate this total from your transaction history, so you’ll know exactly how much income you need to report on your Form 1040 Schedule 1.
You are self employed if you conduct business as a sole proprietor, independent contractor, member of a partnership, or are otherwise conducting business for yourself.
You may be self employed if you have a crypto mining operation, particularly if you want to deduct mining expenses from your income.
If your crypto income activities constitute self employment, then you’ll instead need to put that income on a Form 1040 Schedule C and pay self-employment tax. Self-employment tax accounts for the Social Security and Medicare taxes usually withheld from employee paychecks.
You may be able to deduct expenses from your self employment income. For example, if you have a mining operation, it’s possible to deduct expenses of your equipment and electricity bill (if metered separately).
You may also be able to deduct expenses if you’ve used your home for this hypothetical mining operation, i.e. you’ve devoted a whole spare room to the mining rigs. In this case, you can refer to Form 8829 “Expenses for Business Use of Your Home.”
When your crypto gains are taxed, your cryptocurrency tax rate will be either your income tax rate or lower capital gains rates, depending on how long you held the crypto. Your holding period dictates whether you pay income tax rates or capital gains tax rates.
Your crypto tax rate is dependent on your income and holding periods. If you hold the crypto for a year or less before selling it, exchanging it, or spending it, then your gains are short term and taxed at your income tax rate.
If you hold the crypto for more than a year, you are taxed at the lower capital gains rate, which changes depending on your federal income tax bracket.
If you have modified adjusted gross income and capital gains above USD 200,000 (USD 125,000 if married filing separately), you are subject to a 3.8% Net Investment Income Tax (NIIT).
It is equally important to calculate and report capital losses on your crypto because they may significantly reduce your tax liability. In a given tax year, you can deduct losses up to USD 3,000 (USD 1,500 if married filing separately) or Schedule D, depending which amount is lower. The IRS also provides a worksheet to help you determine the amount of capital losses you can carry forward into future tax years.
If you need help with specific tax deductions and advanced trading taxation topics, a crypto accountant with significant tax preparation experience can answer your questions.
The advantage of using a crypto accountant is that they can unravel the above tax considerations for your unique situation. For more information, read our guide to finding a cryptocurrency accountant.