Do You Need To File Crypto Taxes?

Did you trade bitcoin or other cryptocurrencies? Learn if you’re required to file taxes for your trading and how to file crypto taxes.

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This article is part of TokenTax's Cryptocurrency Tax Guide.

We've seen bitcoin and countless other coins rise exponentially in popularity, and with that, the Internal Revenue Service (IRS) has stated firmly that cryptocurrency must be included on your taxes. Long gone are the days where bitcoin was considered anonymous; now, it's important that you properly file your crypto taxes.

What crypto transactions are taxable?

Barring certain exceptions, you generally owe tax on any income or realized capital gains, and by definition this includes profits you've made with cryptocurrency. In the U.S., cryptocurrency is taxed as property, similar to real estate assets.

You a capital gain or loss whenever you have a taxable sale, spend, or income. For example, you realize capital gains tax on crypto when you sell BTC that you’ve held at a profit. The following sections list cryptocurrency events that are taxable and ones that are not, with examples of each to help explain.

You need to file cryptocurrency taxes if you did any of the following:

  • Sold crypto for fiat (like selling BTC for USD)
  • Traded crypto for crypto (like trading BTC for ETH)
  • Spent crypto on goods or services
  • Had crypto as income, like being paid in crypto, [mining crypto, or staking crypto(/help/how-taxes-work-for-crypto-mining-and-staking/)

Selling crypto for fiat (like selling BTC for USD)

When you sell crypto for fiat currency, you are taxed on the value at which you sold it, net the amount for which you purchased it. For example, if you bought Bitcoin for USD 3,000 and sold it for USD 6,000, you are taxed on your capital gains profit.

Trading crypto for crypto (like trading BTC for ETH)

Crypto to crypto trades are taxed. When you trade cryptocurrency for another crypto, you are taxed on the value at which you sold it in USD, net the amount for which you purchased it in USD.

For example, if you bought Bitcoin for USD 3,000 and later traded it for Litecoin totalling USD 6,000, you are taxed on your capital gains profit.

Spending crypto on goods or services

When you spend cryptocurrency on goods or services, you are taxed on the value at which you exchanged the crypto for the purchase in USD, net the amount for which you purchased the crypto in USD.

For example, if you bought Bitcoin for USD 3,000 and later used it to purchase a motorcycle worth USD 6,000, you are taxed on your capital gains profit.

Having crypto as income, like being paid in crypto, mining crypto or staking crypto

When you receive cryptocurrency as income in the form of wages, salary, mining self employment income, or interest income from staking, you are taxed on the value at which you received the crypto in USD.

For example, if you received Bitcoin worth USD 3,000 in income from consulting on a project, you are taxed on the USD 3,000 value of your earnings.

The following cryptocurrency activities are not taxable:

  • Buying crypto with fiat (like buying BTC with USD)
  • Transferring crypto between wallets, exchanges, etc (this was clarified in recent IRS guidance)
  • Giving cryptocurrency as a gift (note that amounts over USD 15,000 equivalent are subject to the federal gift tax)
  • Donating crypto to a tax exempt organization or charity

Buying crypto with fiat (like buying BTC with USD)

Buying crypto with fiat currency is not a taxable event. For example, if you purchased USD 3,000 and never sold it during the tax year, your purchase does not impact your tax liability.

Transferring crypto between wallets, exchanges, etc (this was clarified in recent IRS guidance)

Transferring crypto between any of the wallets or exchange accounts you own is not a taxable event, as long as you do not trade them for another crypto or to fiat currency when you transfer the assets. For example, if you transferred Bitcoin between your Exodus wallet and your Binance exchange account, it is not a taxable event.

Giving cryptocurrency as a gift (note that amounts over USD 15,000 equivalent are subject to the federal gift tax)

Giving crypto as a gift to another person in itself is not a taxable event as long as it is below the USD 15,000 maximum gifting threshold.

Transactions made after you provide the gift, however, may be subject to taxes following the same tax rules as above. For example, if you gave your daughter USD 3,000 worth of Bitcoin transferred from your wallet to hers, it is not a taxable event.

Donating crypto to a tax exempt organization or charity

Donating crypto to a charity or nonprofit organization is not a taxable event. For example, if you gave Bitcoin worth USD 3,000 to a homeless shelter, it is not a taxable event.

What happens when you have taxable crypto transactions?

When you have a taxable event, that means that you recognize any gain or loss on the asset since you acquired it. Buying crypto with fiat is not in itself a taxable event, so if you've only been buying with fiat and holding and you have no taxable events, then you do not need to report crypto for that tax year.

It’s important to keep in mind that crypto to crypto trades result in tax liability. Many traders were caught off guard at the end of 2017 when they recognized a gain on their BTC near all time highs by trading it for alts, only to have losses in 2018 when the markets went back down.

Crypto losses cannot be carried backwards, and you can see how keeping records for taxes on 200 transactions or more could quickly become complicated.

For tax purposes, it’s recommended that you keep track of your realized and unrealized gains and losses. The simplest way to keep track of your capital asset gains and losses over multiple tax seasons is to store it in crypto tax software.

Amending past returns to include your crypto taxes

You can amend past years to include your crypto taxes. With the IRS’s increasing focus on cryptocurrency, many are amending past returns for all years that they’ve transacted crypto.

You have up to three years to claim any losses or refunds. According to the IRS’s website, audits typically can include returns filed within the last three years in an audit, but they can go back farther in the case of substantial error, but usually not more than six years.

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