How Is Crypto Taxed?
The IRS treats cryptocurrency as property, meaning taxes apply when you earn or dispose of it. Key taxable events include:
✅ Capital Gains Tax: Triggered when selling or trading crypto (e.g., exchanging Bitcoin for Ethereum).
✅ Ordinary Income Tax: Applied to earned crypto (e.g., staking rewards, mining income).
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Taxable Crypto Events
| Earning Events | Disposal Events |
|---|---|
| Staking rewards | Selling for fiat |
| Mining income | Trading crypto-to-crypto |
| Referral bonuses | Using crypto for purchases |
| Interest from crypto lending | Gifts over $17,000 (2024 limit) |
Tax-Free Crypto Events
- 🟢 Holding crypto long-term
- 🟢 Transferring between personal wallets
- 🟢 Receiving gifts under $17,000
- 🟢 Donating to 501(c)(3) charities
What If You Don’t Sell?
- No Tax: Unrealized gains (price appreciation) aren’t taxed.
- Exception: Earned crypto (staking, airdrops) is taxable as income even if unsold.
- Reporting: Purchases with fiat aren’t reported until disposal.
🔍 Pro Tip: Use tax-loss harvesting to offset gains by selling underperforming assets.
Avoiding Capital Gains Tax Legally
- Hold Long-Term: Rates drop to 0–20% after 1+ year.
- Donate Crypto: Avoid taxes + deduct fair market value.
- Use HIFO Accounting: Minimize gains by selling highest-cost lots first.
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Why Report Crypto Taxes?
- Legal Requirement: IRS tracks crypto via exchanges (Form 1099-K).
- Penalties: Evasion risks fines or jail time.
- Audit Protection: Proper records prevent disputes.
How TokenTax Simplifies Crypto Taxes
- Automated Imports: Syncs with 500+ exchanges/wallets.
- Real-Time Previews: Estimate liabilities before filing.
- Tax Forms: Generates IRS forms (8949, Schedule D).
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FAQ Section
How to Take Profits Without Selling?
Use crypto loans or spend via debit cards (taxable as disposal).
Is Spent Crypto Taxable?
Yes—treated as selling at current market value.
What If I Reinvest Crypto Gains?
Still taxable; reinvestment isn’t a deduction.
Can I Deduct Crypto Losses?
Yes! Report capital losses to offset gains.
📌 Remember: Always consult a crypto tax professional for personalized advice.