Crypto Taxes: Common Questions Answered

I haven’t sold any of my coins, do I still have to pay taxes?

If you are a hardcore HODLer and have only purchased crypto, you don’t owe any taxes on those coins until you sell or trigger a realization event. However, trading one coin to another (such as ETH-BTC) is in fact a taxable event and will need to be reported.

How is Bitcoin Taxed?

According to the IRS, Bitcoin and all other digital currencies are treated as property for tax purposes and not as currencies. This is similar to how other forms of property like stocks are treated for taxes. When crypto is sold, the seller is taxed on the difference between the cost basis and proceeds. For more information, read our complete Crypto Taxes Guide.

What tax forms do I report my crypto trading gains on?

Your cryptocurrency trading gains/losses must be reported on your federal income return. You will need to list all of your trades on Form 8949 and report your total gains/losses on Form 1040 Schedule D.

Learn exactly how to report cryptocurrency on taxes in our detailed guide.

How should I calculate my gains and losses?

When calculating your gains and losses, it is important to stay consistent with your costing method. In the U.S., most tax professionals recommend using First-In First-Out for calculating crypto gains/losses. Other options include Last-In First-Out and specific identification.

You can read more about how these costing methods work in our blog post on FIFO and LIFO calculation methods for cryptocurrency.

What if I lost money trading crypto?

If you incurred a capital loss rather than a gain on your cryptocurrency trading (like most traders in 2018) you can actually save money on your taxes by filing these losses. Read more about the tax loss harvesting process here.

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What is the difference between short term and long term capital gains?

The difference between the two types of gains is simply the time held onto the coin between its purchase and sale. If you hold onto your coins for one year or more, it is considered long term gains and you qualify for a lower tax rate.

I am a Bitcoin miner. Do I need to report the coins I have mined?

Yes. The proceeds from mining Bitcoin or any other cryptocurrency will need to be reported as ordinary income. Calculate income by multiplying the amount of coins mined by the USD value of the coin at the time it was mined.

I haven’t kept records on my trading. What do I do?

First, check and see if the exchanges you have traded on let you export trading history. If not, don’t panic! The IRS treats cryptocurrency traders similar to how they treat people who trade stocks. They understand not everyone will have perfect records and expect mistakes.

If this is your case, you need to make an attempt to be as accurate as possible and put in some effort to find historical prices at the time of your trades. The IRS would much rather you estimate your cost basis on a few transactions than not report any of it.

You can use crypto tax software to help you retrieve all of your necessary historical data and automatically create your necessary tax forms.

I didn’t report any of my crypto trading gains from a previous year. What do I do?

You should meet with a qualified tax professional to discuss whether any amendments are necessary. It can also help to read through our complete guide detailing what to do if you need to amend your tax return for cryptocurrency.

Crypto Tax Software

Many cryptocurrency users are turning to cryptocurrency tax calculators to help them automate the entire process of building Form 8949 and other tax reports for their cryptocurrency transactions.

You can use software like CryptoTrader.Tax to automatically generate your required forms. You can then give these forms to your accountant so that they can properly amend your previous tax returns with them, or you can use the forms to amend your tax returns yourself.

Below is a video explaining how the CryptoTrader.Tax platform works.

For a complete breakdown of cryptocurrency taxes, read our Complete 2019 Guide to Cryptocurrency Taxes.