How to Report Crypto on Taxes – Easy Guide for the US [2023]
9 Nov, 2023 · 18 min read
Under current tax laws, you need to report crypto on taxes in the US, with requirements changing each year amid new regulations.
It’s tough nowadays to keep track of all the changes occurring in the crypto tax world, but CoinTracking is here to clarify any questions.
In this guide, we explore how crypto taxes work in the US, how to report crypto on taxes this year, what happens if you don’t report crypto taxes, and much more!
Let’s go!
Do I have to pay crypto taxes?
Yes, you have to pay crypto taxes in the US if you have any profit from your crypto trading activities or if you have any income from digital assets.
In the US, crypto trading, including crypto-to-crypto and crypto-to-FIAT trades, are taxed under capital gains taxes. If you sell any of your crypto, including NFTs, you’d be taxed at a capital gains tax rate.
Whereas, if you earn any income from crypto, from earning any type of crypto interest or staking rewards, would be taxed at your income tax rate and reported on your income tax return.
What happens if you don’t report your crypto taxes
If you don’t report your crypto taxes, you’d likely incur in fines and penalties or harsher consequences like jail time.
The IRS has enough resources to track all unreported or misreported crypto holdings while tax authorities across other countries (including the EU) are transferring information on people’s crypto trading information to pursue any unpaid crypto taxes.
One example of increased efforts is the hiring of thousands of new IRS agents to collect more taxes. In recent years, the IRS has also sent many letters to crypto traders who had not reported their crypto with huge amounts of unpaid taxes.
Professional crypto CPAs can help you estimate the correct amount to pay by reconciling your crypto trading, generating the right reports, etc.
In recent times, the most popular case of someone not reporting their crypto taxes was the deceased John McAfee, who pledged not to pay taxes in the US, from non-crypto activities to his crypto holdings. The IRS and other US authorities went after McAfee with many resources to recover the unpaid taxes.
How do I report crypto on my tax return?
1. Calculate your crypto gains and losses
Here’s how to calculate your crypto gains and losses on a trade:
- Determine the cost basis of your trade: If you buy 1 Bitcoin (BTC) for $30K, your cost basis is that Fair Market Value (in USD) at the time you bought it.
- Determine the sales proceeds on the trade: Let’s imagine that Bitcoin rose to $60K, and you decide to sell it. If you sell the 1 BTC you have, your total sales proceeds will be $60K.
- Calculate your crypto gain on the trade: Capital gains/losses are the difference between your sales proceeds and cost basis. In this scenario, your gain is $30K ($60K – $30K).
2. Complete your Crypto Tax Forms
You have to complete the right crypto tax forms depending on the nature of your crypto income.
If you have gains/losses from crypto or NFT trading, you need to separate them according to the holding period, short-term and long-term, of your trades and register them on Form 8949 and Schedule D.
If you have income, you need to determine its Fair Market Value (in USD) at the time you received that income and include it in your US Individual Income Tax Return.
3. Complete the rest of your tax return
You need to complete the right tax forms and schedules to accurately report your crypto taxes, from Form 8949 to Schedule 1 or Schedule D, for example.
4. Send your tax return to the IRS
After tracking all of your crypto with crypto tax software like CoinTracking and generating the right tax report, you can generate ready-to-submit forms and import them into tax filing software like TurboTax.
Which tax forms do you need to file crypto taxes?
Form 1040
Form 1040 is the primary tax form to report your total crypto income and gains/losses.
Your US Individual Income tax Return includes any income you received, from crypto to non-crypto income, while the right Schedules will include information on your crypto gains/losses.
Schedule D
Schedule D is used to report your capital gains and losses from your crypto/NFT trading (assuming that you sold at least some of your holdings during the tax season). Schedule D is used with Form 1040 to report crypto gains/losses.
Form 8949
Form 8949 is used to reconcile your capital gains and losses from cryptocurrencies, including reporting adjustments, expenses, corrections for transactions, and transactions that were not reported or need to be corrected from the information on any Form 1099-B. Moreover, every single crypto trade has to be listed and cannot be grouped.
Schedule C and Schedule SE
Schedule C and Schedule SE are used with your Income Tax Return to report crypto income if you’re self-employed in the US.
Your crypto from non-employee work – income, expenses, and net profit/loss – should be reported on Schedule C. If net profit is over $400, you need Schedule SE (Self-Employment Tax).
Other tax forms you may need to file crypto taxes
Form 1040 Schedule B
- Form 1040 Schedule B Part I: Interest (lending, staking, interest, masternodes, liquidity rewards);
- Form 1040 Schedule B Part II: Dividends.
Form 1040 Schedule 1
- Form 1040 Schedule 1 Part I: Other income (mining (non commercial), airdrops, income, rewards/bonus, other income).
What forms should I receive from my crypto platform?
Using crypto tax software is the easiest way to track crypto gains/losses and generate tax reports, while your crypto tax tool should generate forms like Form 8949.
Moreover, crypto exchanges serving US customers should send forms like Form 1099-B to crypto investors.
How do I report my crypto trading
In the US, you need to report your capital gains/losses from your crypto trading while including that information on the right tax forms.
You need to determine your crypto gains/losses and separate them by short-term (holding crypto for less than 12 months before selling) and long-term (holding crypto for over 12 months before selling) gains in your form.
Your gains/losses would then have to be reported on Form 8949 and Schedule D. CoinTracking can help you include this information in the right tax reports.
How do I report my crypto earnings and rewards
In the US, receiving income from crypto activities like crypto interest vehicles, staking rewards, airdrops, hard forks, salaries, or payments is taxed under income taxes.
You need to determine the Fair Market Value (in USD) of that income, measured at the time you received any of those crypto earnings or rewards.
After determining the FMV of each crypto income you received, you need to include it in your US Individual Income Tax return (Form 1040) alongside your other income (including non-crypto) for the tax year and Schedule 1.
How to declare losses in crypto tax return
In the US, you also need to report your crypto losses on the right crypto taxes. Moreover, you can claim up to $3,000 in crypto losses from your other capital gains, effectively reducing your capital gains taxes.
First, you need to determine your capital losses from your crypto/NFT trading. Secondly, you need to include those crypto losses alongside some more information in Form 8949 and Schedule D.
How to report crypto taxes in other countries
Canada
Canada taxes cryptocurrency gains according to their Federal Income Tax and Provincial Income Tax, while a private investor would only pay taxes over 50% of its total gains. Learn more about crypto taxes in Canada.
Australia
Net cryptocurrency gains are taxed under capital gains taxes in Australia if you’re using crypto as an investment. Learn more in our Australia crypto tax guide.
UK
In the UK, if you dispose of crypto (e.g., selling, spending, gifting), you’d be taxed under a capital gains tax rate, while if you earn crypto income, you’d be taxed under an income tax rate.
Discover more in our UK crypto tax guide.
CoinTracking FAQ
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Questions and Answers on Crypto Portfolio Tracking & Crypto Taxes
If you are not yet familiar with CoinTracking, these frequently asked questions are an ideal starting point for using our expertise and clarifying important issues.
Conclusion
Under current regulations, the US taxes cryptocurrencies and mandates that investors report crypto on taxes each tax season.
As a US citizen, you must answer the crypto question on Form 1040 even if you didn’t sell any of your crypto holdings, while crypto income and crypto gains/losses have to be reported on Form 8949 and your Income Tax Return.
The easiest way to comply with crypto regulations and tax laws is to frequently import and track your crypto trades and use crypto tax software to determine gains/losses and generate ready-to-submit tax reports for your crypto.
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.
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