The IRS is watching. Everything you need to know to stay legal and minimize your tax bill.
Yes — and aggressively. The IRS classifies cryptocurrency as property subject to capital gains tax. The IRS has asked about cryptocurrency on every Form 1040 since 2019. Answering 'No' when you have transacted can constitute perjury. Major exchanges are legally required to issue 1099 forms and report directly to the IRS.
Selling crypto for dollars, trading one crypto for another, using crypto to buy goods or services, receiving crypto as income, and receiving staking or mining rewards are ALL taxable events. Buying crypto with dollars is NOT taxable. Moving crypto between your own wallets is NOT taxable.
Hold under one year: profits taxed as ordinary income, up to 37%. Hold over one year: long-term capital gains rate applies, 0%, 15%, or 20% depending on your income. This difference is enormous — it is one of the strongest arguments for being a long-term holder.
Tax-loss harvesting: sell losing positions to offset gains. Hold 12+ months for dramatically lower rates. Use a crypto IRA for tax-advantaged exposure. Donate appreciated crypto to charity for a full deduction. Gift up to $18,000 per year tax-free. Keep meticulous records of every single transaction.
Koinly imports from 350+ exchanges and generates IRS-compliant reports. CoinTracker is the official TurboTax partner. TaxBit is enterprise-grade used by major exchanges. ZenLedger excels at DeFi and NFT tracking. All connect to your exchanges automatically.
The IRS has dramatically increased crypto enforcement — sending warning letters to hundreds of thousands, issuing subpoenas to exchanges, and pursuing criminal prosecutions. Penalties include back taxes with interest, civil penalties up to 25% of unpaid tax, and potential criminal charges. Always consult a CPA who specializes in cryptocurrency.
Our expert guide covers this topic in complete detail with plain English explanations, a glossary, and action steps.
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