IMPORTANT NOTICE
Finbold may provide educational material to inform its users about crypto and digital assets. This content is for general information only and does not constitute professional advice or training certification. Content is provided "as is" without any warranties. Users must conduct their own independent research, seek professional advice before making investment decisions, and remain solely responsible for their actions and decisions.
RISK WARNING: Cryptocurrencies are high-risk investments and you should not expect to be protected if something goes wrong. Don’t invest unless you’re prepared to lose all the money you invest.
By accessing this Site, you acknowledge that you understand these risks and that Finbold bears no responsibility for any losses, damages, or consequences resulting from your use of the Site or reliance on its content. Click here to learn more.
Cryptocurrency is no longer in a gray area. The Internal Revenue Service (IRS) has ramped up enforcement, and as of 2025, new reporting rules mean it’s harder than ever for digital asset traders and investors to stay off the tax radar. Whether you’re holding Bitcoin, flipping non-fungible tokens (NFTs), or staking altcoins, understanding what counts as taxable income, and how to report it, is now essential.
In this guide, we explain how the IRS treats crypto, which activities are taxable, and what the new 1099-DA form means for your 2025 tax return.
How the IRS Treats Crypto
The IRS classifies cryptocurrencies as property, not currency. This means the same rules that apply to stocks or gold also apply to Bitcoin (BTC), Ethereum (ETH), or any other digital asset.
- Filing deadlines: If your tax year ends December 31, your return is due April 15 (or the next business day if it falls on a weekend/holiday).
- Fiscal year taxpayers: File on or before the 15th day of the fourth month after your year-end.
Note
Tax filers using a fiscal year (any year that ends on the last day of any month other than December) should do their returns on or before the 15th day of the fourth month after the close of the fiscal year. If the due date falls on a Saturday, Sunday, or legal holiday, the date is pushed to the next business day.
Non-Taxable Crypto Events
Not every crypto move triggers a tax bill. These events are non-taxable:
- Buying and holding: Simply purchasing crypto and storing it in your wallet is not taxable until you sell.
- Transfers between your wallets: Moving assets from Coinbase to a hardware wallet doesn’t count as income or a sale.
- Gifting crypto: You can give up to $18,000 per recipient in 2025 without filing a gift tax return. Above that, you’ll need Form 709, though the recipient owes nothing on receipt.
- Receiving crypto as a gift: Tax is only due when you later sell or use the gifted crypto.
- Donations to charity: Giving crypto to qualified 501(c)(3) organizations is tax-free and may even count as a charitable deduction.
Crypto beginners’ corner:
- How to Invest in Crypto? Complete Beginner’s Guide;
- Best Cryptocurrency Exchanges – Top 7 Picks;
- 15 Best Crypto Books for Beginners;
- Must-read Crypto Wallets Guide for Beginners;
- How to Mint & Sell NFTs? Beginner’s Guide;
- How to Stake Cryptocurrency? Step-by-Step;
- 11 Crypto Slang Terms Explained;
- Best Crypto Trading Bots – Top 3 Picks;
- What is DeFi? Liquidity Mining Explained.
Taxable Crypto Events
Crypto becomes taxable the moment you sell, swap, or spend it. The IRS splits these into two categories: capital gains and income.
Taxed as Capital Gains
- Selling for cash: Profit on sales is taxable; losses can offset gains.
- Swapping crypto for crypto: Exchanging ETH for SOL counts as selling one asset and buying another.
- Spending crypto: Paying for goods or services (even a coffee) creates a taxable sale of the crypto used.
Taxed as Income
- Getting paid in crypto: Wages received in Bitcoin or other tokens are taxed as ordinary income.
- Accepting crypto for services: Businesses or freelancers must report it as income at fair market value.
- Mining: Coins mined are income at the time of receipt; if done as a business, they’re also subject to self-employment tax.
- Staking rewards: Taxable when received, valued at the fair market price of the tokens.
- Hard forks and airdrops: If new tokens land in your wallet and you can access them, they’re taxable as income.
Are NFTs taxable?
Yes. In IRS Notice 2023-27, the agency confirmed that some NFTs can be taxed as collectibles if they represent items like digital art or trading cards. This means they may face a 28% long-term capital gains tax rate, higher than most crypto assets.
NFT Investors: Buying and reselling NFTs is taxed like cryptocurrency trading. Any profit is subject to capital gains tax, and the collectible classification may push long-term gains into the 28% bracket.
NFT Creators: Income from selling NFTs is taxed as ordinary income, plus potential self-employment tax if creating NFTs is treated as a trade or business. Business creators can deduct ordinary and necessary expenses.
Calculating Crypto Taxes
Cost Basis and Capital Gains
Your cost basis is what you originally paid (or the value when received).
- Capital gain = sale price – cost basis.
- Capital loss = cost basis – sale price.
For gifted crypto, your cost basis is generally the giver’s cost basis, unless the asset is worth less at the time of receipt.
Short-Term vs. Long-Term
- Short-term gains: Assets held ≤ 1 year → taxed as ordinary income.
- Long-term gains: Assets held > 1 year → taxed at preferential rates (0%, 15%, or 20%, depending on income).
Using Losses
Capital losses can offset capital gains. If losses exceed gains, up to $3,000 can be deducted against other income annually, with the rest carried forward.
IRS Forms in 2025
Starting with the 2025 tax year (filed in 2026), digital asset reporting is being standardized.
- Form 1099-DA: New form issued by exchanges reporting gross proceeds from digital asset sales.
- Form 1040: Main individual tax return (with the crypto disclosure question).
- Form 8949: Used to detail sales, swaps, and disposals.
- Schedule D: Summarizes capital gains and losses.
- Schedule 1: Reports additional income like mining, staking, or NFT sales.
Note: Older forms such as 1099-MISC, 1099-NEC, or 1099-K may still apply to pre-2025 activity but are being phased out.
New Reporting Rules for 2025–2026
The Infrastructure Investment and Jobs Act introduced strict broker reporting requirements:
- 2025: Exchanges begin issuing Form 1099-DA to both customers and the IRS, reporting gross proceeds.
- 2026: Reporting expands to include cost basis for certain transactions.
Until cost basis reporting is fully in place, taxpayers should continue tracking transactions carefully, including acquisition costs and fair market value at disposal.
Tracking Your Crypto Activity
The IRS expects taxpayers to maintain accurate records of all taxable events, including:
- Dates of acquisition and disposal
- Fair market value at the time of transaction
- Cost basis of each asset
- Receipts for income from mining, staking, or airdrops
Good recordkeeping ensures accurate filing and protects you in case of an audit.
Tools and Professional Help
Crypto tax software has matured significantly. Leading platforms in 2025 include CoinLedger, CoinTracker, TokenTax, and Koinly, all of which integrate with major exchanges and wallets to generate IRS-ready forms.
- Good for DIY: Small-scale traders with activity on one or two major exchanges.
- Best for professional help: Active DeFi users, cross-chain traders, or NFT investors should consult a CPA with crypto expertise to avoid errors and optimize deductions.
Preparing for Tax Season
Don’t leave it to the last minute. Tips for a smoother filing season:
- Keep your transaction history updated monthly.
- Import trades into tax software regularly.
- Review forms as soon as your exchange issues them.
- Plan ahead if you need a CPA—crypto specialists get booked early.
Final Thoughts
The IRS has tightened its grip on digital assets. With new reporting rules and the introduction of Form 1099-DA, compliance is no longer optional. Staying ahead means knowing what counts as taxable, keeping meticulous records, and preparing your return before deadlines.
Failing to report accurately can bring stiff penalties, but with the right tools and planning, filing crypto taxes in 2025 doesn’t have to be a headache.
FAQs on Paying Taxes on Crypto
Is Cryptocurrency Taxable?
Yes, cryptocurrencies and other digital assets are taxable. The IRS categorizes crypto as “property,” just like stocks, bonds, gold, and other assets.
How Do I Know If I Owe Crypto Taxes?
If you trade or mine cryptocurrency, if you receive crypto in exchange for goods or services, if you make any purchase with crypto, you’re most likely going to pay tax on these events.
What Are Capital Gains and Losses?
Capital gains are the profit derived from the sale of crypto and other digital assets such as NFTs. Capital gains occur when the selling price of an asset exceeds its cost basis. A capital loss is the opposite of capital gain. It results in a loss when the selling price is lower than the cost basis.
What Happens If I Don’t Disclose Crypto Activity?
Penalties vary depending on the violation. Failure to report crypto income can result in accuracy penalties (20% of underpaid tax), while deliberate fraud can trigger penalties of up to 75% of underpayment plus possible criminal charges. For non-disclosure of offshore crypto accounts, civil penalties can reach tens of thousands of dollars per year. The exact amount depends on the nature and severity of the omission.
