Cryptocurrency tax preparation: what the IRS requires
The IRS treats crypto as property, so taxable events must be reported. Gains go on Schedule D, and crypto income is ordinary income on Form 1040.
Vahe HakobyanEditor-in-chief
Updated Oct 5, 20263 min readFact-checked
On this page
- Selling, swapping, spending and earning are taxable; buying and holding are not.
- Gains go on Schedule D; crypto income is ordinary income.
- Incorrect reporting can lead to IRS penalties and interest.
Cryptocurrency tax preparation starts with sorting your activity into sales, swaps, spends, and income. A crypto profit calculator totals the gain or loss on a trade from the amounts you paid and received.
Is cryptocurrency taxable in the US?
For federal tax purposes, the IRS classifies digital assets as property rather than currency, so a taxable event has to be reported on your US return even if the money never reaches your bank account.
Which crypto activities are taxable?
Selling, swapping, spending and earning crypto can each create a tax bill. Buying with dollars and holding are not taxable by themselves. The IRS says income from digital assets is taxable, including staking, mining, airdrops and payments.
How do I report crypto to the IRS?
Capital gains and losses from crypto go on Schedule D. Crypto income is reported as ordinary income, because you did not sell anything to get it. Form 1040 and Form 1040-SR ask a digital assets question. Missing or incorrect reporting can lead to IRS penalties and interest.
What records and tax years matter?
Keep enough detail to show what you paid, what you received and when each transaction happened. A crypto transaction counts in the tax year it occurs, and that year sets which return reports it.
Frequently asked questions
No. Holding alone is not taxable, but staking rewards and airdrops are income in the year you receive them.
A transfer between your own wallets is usually not a sale, so your cost basis carries over.
Capital losses can offset capital gains, and a limited amount can offset ordinary income. A lost or stolen coin is not automatically deductible.
A gift usually carries over the donor's cost basis. Inherited crypto generally gets a new basis equal to its value at the date of death.
