Do you have to report crypto on taxes if you don’t sell?
28 Mar, 2023 · 5 min read
Do you have to report crypto if you don’t sell it?
There are many caveats in crypto guidelines that leave room for doubts among crypto enthusiasts, including airdrops, hard forks, crypto salaries, etc. Today we cover all the tax implications of receiving crypto but not selling it.
Do you pay taxes on crypto if you don’t sell?
If you buy crypto with FIAT currency and don’t sell it, you don’t need to pay taxes on it. However, you’ll notice that on Form 1040, you have the popular ”crypto question.”
In the latest clarification by the IRS, if you only buy crypto with FIAT and do nothing with it (e.g., sell it, gift it, generate more crypto income, don’t do any crypto trading, etc.), you can answer “No” to the question. That will be the only crypto tax reporting obligation you’ll have until you actually sell your crypto.
Do you pay taxes on crypto you received but don’t sell?
Yes, there are several scenarios where you receive income as cryptocurrency, which needs to be reported even if you don’t sell it.
For example, if you receive crypto from earning interest, staking rewards, an airdrop, or a salary, you need to report that income, even if you don’t sell the coins you received. Why?
Because these operations are taxed differently than crypto trades. When you trade crypto – for FIAT or another crypto – you are taxed at the capital gains level, while other operations are taxed at the ordinary income level.
Let’s check it case by case.
Do you have to pay taxes if you receive an airdrop but don’t sell?
If you received a crypto airdrop, you would have to report it at the time you receive the airdrop according to its Fair Market Value (in USD). Even if you only receive an airdrop and don’t sell it, you still need to declare its FMV as ordinary income for that tax year.
Learn more about the tax implications of receiving crypto airdrops.
Do you have to pay taxes if you receive coins from a hard fork but don’t sell?
When you receive new coins from a hard fork, you need to determine their Fair Market Value (in USD) at the time you receive the coins and report it as ordinary income. This can be complex if there are no market prices for the new coins.
Check this tax guide to learn how to report hard forks.
Do you have to pay taxes if you receive staking rewards but don’t sell?
Receiving crypto staking rewards is a taxable event subject to ordinary income taxes. You need to determine the Fair Market Value (in USD) each time you receive staking rewards. All the batches need to be reported for the tax year.
Learn the tax implications of receiving staking rewards. If you use more complex earning vehicles like rebase protocols, check this tax guide to learn more.
If you receive crypto interest from other vehicles, you have to follow the same procedure: determine its FMV when you receive the interest and declare it as ordinary income.
The easiest way to track all the interest or staking batches you receive at different times is to use a crypto tax software like CoinTracking, which does it for you.
Do you have to pay taxes if you receive crypto as your salary but don’t sell it?
If you receive your salary in crypto, you need to declare it as ordinary income, even if you don’t convert the crypto to FIAT (e.g., USD). This is the same reporting obligation as receiving your regular salary in dollars.
Discover all the tax implications of receiving crypto as compensation, whether as an employee or freelancer.
Do you have to declare cryptocurrency profits?
When you sell cryptocurrency that you bought at a profit, you need to report that gain and pay the appropriate capital gains tax rate based on your holding period.
Let’s imagine the following scenario:
In January 2021, you bought one bitcoin at $30K. On April 2021, one bitcoin was worth $50K, and you decided to sell. Your capital gain is the difference between the sales proceeds ($50K) and the cost basis ($30K). Since you’re selling your bitcoin before holding for more than 12 months, you’ll face a short-term capital gains tax scenario, with a tax rate ranging from 10% to 37%, depending on your personal situation (e.g., filing status, etc.).
Crypto-tax free events
You don’t have to pay crypto taxes on the following operations:
- Buying cryptocurrency with FIAT and not selling it
- Moving your crypto between personal wallets or exchanges
- Receiving a gift in crypto
- Donating crypto to a charity
- Stolen/hacked/rugged crypto
- Receiving qualified income or generating capital gains in a tax-deferred or tax-free retirement account that you are using to invest in crypto
What happens if I don’t report crypto on taxes?
If you don’t report crypto on taxes, you’ll likely end up with fines, interest, or even be charged with a criminal offense. Recently, many traders in the US, using exchanges like Coinbase, received letters from the IRS with huge amounts of taxes due to not reporting them for years.
If you received any of these letters, please search for professional help as these values can be miscalculated, and your tax bill may be lower.
Do you have to report crypto to the IRS?
If you have a profit/loss from crypto trading or receive any form of income in crypto, you’ll need to report it to the IRS.
Let’s see the crypto operations you need to report and which taxes are due in each case:
- Selling crypto for USD: Capital gains taxes
- Trading crypto for another cryptocurrency: Capital gains taxes
- Trading a cryptocurrency like ETH for a stablecoin: Capital gains taxes
- Earning interest in crypto: Ordinary income taxes
- Receiving a crypto airdrop: Ordinary income taxes
- Receiving crypto staking rewards: Ordinary income taxes
- Earning a salary in crypto: Ordinary income taxes
- Receiving new coins from a hard fork: Ordinary income taxes
- Receiving crypto as a bonus reward, referral fees, tips: Ordinary income taxes
The best crypto tax calculator: CoinTracking
The best crypto tax software to import and track your crypto trades is CoinTracking.
You can import your trades using CSV or API, track your gains/losses, and generate tax reports according to your preferred accounting method.
CoinTracking is your full crypto tax solution for:
- Importing (API & CSV) your trades from 110+ exchanges.
- DeFi and NFT support with our ETH+DEX importer.
- Importing your Binance Chain, Binance Smart Chain, and MATIC transactions.
- 25+ advanced reports, including which coins offer you a tax-free rate.
- Automatic capital Gains, according to 12 accounting methods (e.g., FIFO, LIFO, HMRC, ACB), accepted worldwide.
- Generating complete Tax Reports in your country.
Moreover, CoinTracking can easily classify all your earnings from yield farming, liquidity pools, crypto staking, and much more.
Crypto taxes with no errors: CoinTracking Full Service in the US.
CoinTracking also offers a Full Service for US traders. A crypto reconciliation tax expert from Polygon Advisory Group, a leading US crypto tax firm, will review your CoinTracking account, help fix any errors, and ensure you submit your crypto tax reports error-free.
This post is part of the Crypto Taxes AMA series. Follow our weekly AMAs on Twitter where our expert CPA, Sharon Yip answers your crypto tax questions. You can download 30+ AMA crypto tax reports for free.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.