How to Report Crypto on Taxes – Easy Guide for the US [2024]

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 taxable and subject to 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, the income would be taxed at your ordinary income tax rate and it needs to be 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 even harsher consequences like jail time.

The IRS has enough resources to track all unreported or misreported crypto activities while tax authorities across other countries (including the EU) are tracking information on people’s crypto trading information and other activities to pursue any unpaid crypto taxes. 

One example of increased efforts is the hiring of thousands of new IRS agents to collect more crypto 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 calculate the correct tax amount to pay by reconciling your crypto transactions, 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:

1. Determine the cost basis of your trade: For example, if you buy 1 Bitcoin (BTC) for $30K, that will be your cost basis, which is usually also the Fair Market Value (in USD) at the time you bought the BTC.
2. Determine the sales proceeds on the trade: Let’s imagine that Bitcoin price rose to $60K, and you decide to sell it. If you sell the 1 BTC you have, your total sales proceeds will be $60K.
3. Calculate your crypto gain on the trade: Capital gains/losses are calculated based on the difference between your sales proceeds and cost basis. In this example, 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, into short-term and long-term, and report them on Form 8949 and Schedule D.

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 activities with a crypto tax software like CoinTracking and preparing the right tax report, you can generate ready-to-submit forms and import them into tax filing software like TurboTax, then e-file your tax return with the IRS.

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. You will need to make sure to use the correct tax form or schedule to report 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 year). Schedule D is used with Form 1040 to report any capital 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 and expenses if you’re running your crypto activities as a sole proprietor or single member LLC.

Your crypto activities related to non-employee work – income, expenses, and net profit/loss – should be reported on Schedule C. If net profit is over $400, you need to file Schedule SE (Self-Employment Tax).

Other tax forms you may need to file regarding 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, hard forks, staking income, rewards/bonus, other income).

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 ordinary income tax rates. 

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. 

How to declare losses in crypto tax return

In the US, you also need to report your crypto losses on the right tax form. You can use your capital losses from crypto to offset your capital gains. Moreover, you can deduct  up to $3,000 of net losses and use it to offset your ordinary income, effectively reducing your capital gains taxes.

Here is how to report your crypto losses: 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.

Conclusion

Under current regulations, the US taxes cryptocurrencies and mandates that investors report their taxable crypto transactions when filing their tax return every 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 like CoinTracking 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.