You’ve probably heard that cryptocurrency is taxed, but what does that mean for you? If you have traded Bitcoin, earned rewards from staking, or used crypto to buy something, the IRS expects you to report it. But how much do you owe? What counts as taxable? And how do you file your crypto taxes correctly? It might seem overwhelming at first, but do not worry. You are not alone. This guide breaks everything down with simple explanations to help you understand exactly what you need to do.
Does the IRS Tax Cryptocurrency?
The IRS taxes cryptocurrency because it considers it property instead of currency. You may owe taxes on any gains whenever you sell, trade, or use crypto for purchases. The IRS treats these transactions just like selling stocks or real estate. If the value of your crypto has increased since you acquired it, you will need to report the profit and pay taxes accordingly. On the other hand, if you sell at a loss, you can deduct that amount from your taxable income.
Holding cryptocurrency without selling or using it does not create a tax obligation. Taxes apply only when you complete a transaction that results in a gain or loss. Even if you do not cash out to traditional currency, trading one type of cryptocurrency for another counts as a taxable event. The IRS has been increasing its efforts to track crypto transactions, so staying informed and reporting them accurately is essential.
Crypto Tax Rates in the United States
The amount you owe in taxes on cryptocurrency depends on how long you hold it and how you acquire it. If you sell or trade crypto after holding it for one year or less, your profit is considered a short-term capital gain. The IRS taxes short-term gains at the same rate as regular income, ranging from 10 percent to 37 percent depending on your total earnings. Earning cryptocurrency through staking, mining, or payment for services is also taxed as ordinary income at the same rates.
If you hold crypto for over a year before selling, you qualify for long-term capital gains tax rates. These range from 0 percent to 20 percent depending on your income level. The IRS also classifies certain digital assets, such as NFTs, considered collectibles, under a separate category. These assets may be taxed at a higher rate of up to 28 percent. Understanding these tax rates can help you plan your transactions more effectively and minimize your tax burden.
How Is Cryptocurrency Taxed?
Understanding how the IRS taxes cryptocurrency is essential for compliance and financial planning. Depending on the nature of your cryptocurrency transactions, the taxation primarily falls into two categories: capital gains and income taxes.
Capital Gains Tax
When you sell or exchange cryptocurrency, the IRS considers it a capital asset, similar to stocks or real estate. The profit or loss from these transactions is categorized as a capital gain or loss. The duration you hold the cryptocurrency before selling determines whether it’s a short-term or long-term capital gain, each taxed differently.
Short-Term vs. Long-Term Capital Gains
- Short-Term Capital Gains: Holding cryptocurrency for one year or less before selling is a short-term capital gain. These gains are taxed at the same rates as your ordinary income, which vary based on your taxable income and filing status.
- Long-Term Capital Gains: Holding cryptocurrency for more than one year qualifies the profit as a long-term capital gain. These gains benefit from lower tax rates, generally 0%, 15%, or 20%, depending on your taxable income and filing status.
The following table depicts the long-term Capital Gains Tax rates for the 2024 tax year (taxes due in April 2025)
| Tax Rate | Single | Head of Household | Married filing jointly | Married filing separately |
| 15% | $47,026 to $518,900 | $63,001 to $551,350 | $94,051 to $583,750 | $47,026 to $291,850 |
| 20% | $518,901+ | $551,351+ | $583,751+ | $291,851+ |
The next table shows the short-term Capital Gains Tax rates for the 2025 tax year (taxes due in April 2026)
| Tax Rate | Single | Head of Household | Married filing jointly | Married filing separately |
| 15% | $48,350 to $533,400 | $64,750 to $566,700 | $96,701 to $600,050 | $48,350 to $300,00 |
| 20% | $533,400+ | $566,700+ | $600,050+ | $300,000+ |
Income Tax
When you receive cryptocurrency as payment for goods or services, or through activities like mining and staking, the IRS treats it as ordinary income. The cryptocurrency’s fair market value at the time you receive it determines the amount of income to report.
Ordinary income, including income from cryptocurrency, is taxed at federal income tax rates, which are progressive. These rates are adjusted annually to account for inflation and vary based on your taxable income and filing status.
The table below shows the federal income tax rates for 2024
| Tax Rate | Single | Head of Household | Married filing jointly | Married filing separately |
| 10% | $0 to $11,600 | $0 to $16,550 | $0 to $23,200 | $0 to $11,600 |
| 12% | $11,600 to $47,150 | $16,551 to $63,100 | $23,201 to $94,300 | $11,601 to $47,150 |
| 22% | $47,150 to $100,525 | $63,101 to $100,500 | $94,301 to $201,050 | $47,151 to $100,525 |
| 24% | $100,525 to $191,950 | $100,501 to $191,950 | $201,051 to $383,900 | $100,526 to $191,950 |
| 32% | $191,950 to $243,725 | $191,951 to $243,700 | $383,901 to $487,450 | $191,951 to $243,725 |
| 35% | $243,725 to $609,350 | $243,701 to $609,350 | $487,451 to $731,200 | $243,726 to $365,600 |
| 37% | $609,350+ | $609,350+ | $731,201+ | $365,601+ |
The next table also shows the federal income tax rates for 2025
| Tax Rate | Single | Head of Household | Married filing jointly | Married filing separately |
| 10% | $0 to $11,925 | $0 – $17,000 | $0 to $23,850 | $0 to $11,925 |
| 12% | $11,925 to $48,475 | $17,000 to $64,850 | $23,850 to $96,,950 | $11,925 to $48,475 |
| 22% | $103,350 to $197,300 | $64,850 to $103,350 | $96,950 to $206,700 | $48,475 to $103,350 |
| 24% | $197,300 to $250,525 | $103,350 to $197,300 | $206,700 to $394,600 | $103,350 to $197,300 |
| 32% | $250,525 to $626,350 | $197,300 to $250,500 | $394,600 to $501,050 | $197,300 to $250,525 |
| 35% | $250,525 to $626,350 | $250,500 to $626,350 | $501,050 to $751,600 | $250,525 to $375,800 |
| 37% | $626,350+ | $626,350+ | $751,600+ | $375,800+ |
What Happens If You Don’t Report Crypto Taxes?
Failing to report cryptocurrency taxes can lead to serious consequences. The IRS considers cryptocurrency transactions taxable, and not reporting them may result in penalties, interest, or audits. If you underreport your income or gains, the IRS may send a notice requiring you to correct your tax return. Repeated non-compliance can increase the chances of an audit, which could lead to further scrutiny of your financial records.
In more severe cases, intentional tax evasion can result in more considerable fines or even legal action. The IRS has been increasing its efforts to track cryptocurrency transactions, working with exchanges and other financial institutions to identify unreported income. If you fail to report your crypto activity, you may face additional penalties and increased tax liability. Keeping accurate records and reporting transactions can help avoid financial and legal trouble.
How to Report Crypto Taxes (Step-by-Step Guide)
Reporting cryptocurrency taxes correctly is essential for compliance with IRS regulations. The process involves gathering necessary records, calculating gains or income, and completing the appropriate tax forms. Following these steps will help ensure accuracy and minimize the risk of errors.
Step 1: Gather All Your Crypto Transaction Records
The first step is to collect all records of your cryptocurrency transactions. This includes details of purchases, sales, trades, transfers, and any income received in crypto. You need to document each transaction’s dates, amounts, and fair market values in U.S. dollars at the time of execution. If you have used multiple exchanges or wallets, retrieving all relevant data is necessary to ensure complete reporting. Keeping detailed records helps in calculating taxes owed and provides support in case of an IRS audit.
Step 2: Use a Crypto Tax Solution Like Vezgo to Track Your Transactions
Manually tracking crypto transactions across different platforms can be difficult and time-consuming. A crypto tax solution like Vezgo simplifies this process by automatically consolidating transaction data from various exchanges, wallets, and blockchain networks. Using a tool like Vezgo ensures that all transactions are accurately recorded and categorized, making it easier to calculate taxable events. Automated solutions also help reduce the risk of missing transactions, which could lead to reporting errors or penalties.
Step 3: Determine Capital Gains or Losses
Once all transaction data is organized, you must calculate capital gains and losses. The IRS requires taxpayers to determine each asset’s cost basis, including the original purchase price and any associated fees. When you sell, trade, or use cryptocurrency, the difference between the selling price and the cost basis determines the gain or loss. Short-term and long-term gains are taxed differently, so it is essential to classify them correctly. Losses can sometimes offset gains, potentially reducing the overall tax burden.
Step 4: Report Crypto Income Separately
The IRS treats as ordinary income if you have earned cryptocurrency through mining, staking, airdrops, or payments for goods and services. You must report the fair market value of the crypto at the time you received it. This income may be subject to self-employment tax if earned through work or business activities. Tracking income separately from capital gains ensures accurate reporting and helps determine the correct tax obligations.
Step 5: Fill Out the Correct Tax Forms
The IRS requires different tax forms based on the type of cryptocurrency transaction. Capital gains and losses are reported on Form 8949, which details each transaction. The totals from this form are then transferred to Schedule D of your tax return. Cryptocurrency income must be reported on Schedule 1 or Schedule C, depending on whether personal or business income. Filling out the correct forms ensures compliance and avoids discrepancies that could lead to IRS inquiries.
Step 6: File Your Taxes and Keep a Copy of Your Records
After completing the required forms, review your tax return for accuracy before filing. Submitting incorrect information can result in delays or penalties. Filing electronically through tax software or a tax professional can help streamline the process. After filing, keep copies of all records, including transaction history and tax forms, for future reference. Proper documentation is useful in case of an IRS audit or if you need to amend a return later.
How to Reduce Your Crypto Tax Bill
Lowering your cryptocurrency tax bill starts with tax-loss harvesting, which allows you to sell assets at a loss to offset taxable gains. If your losses exceed your gains, you can deduct a portion from your regular income, reducing overall tax liability. Keeping track of unrealized losses throughout the year helps you make strategic decisions before filing taxes.
Holding crypto for over a year before selling can also reduce taxes, as long-term capital gains are taxed at lower rates than short-term gains. Gifting crypto within IRS limits or donating to qualified charities can also provide tax benefits. These strategies help lower tax burdens while ensuring compliance with IRS regulations.
Using tax-advantaged accounts like self-directed IRAs allows you to defer or eliminate taxes on crypto investments. Tracking transactions with tax software ensures accurate reporting and helps identify potential deductions. Proper planning and record-keeping make crypto tax compliance more manageable and more efficient.
Vezgo: The Crypto Tax API
Vezgo is a powerful crypto API designed to simplify data aggregation from exchanges, wallets, and blockchain networks. Whether you are an individual investor or a business managing cryptocurrency transactions, Vezgo helps streamline crypto tax compliance by consolidating transaction data in one place. With support for crypto wallet APIs, Vezgo enables seamless tracking of holdings across multiple platforms, making it easier to calculate capital gains, monitor taxable events, and generate reports for tax filing. Users in crypto-friendly states can benefit from its automated tracking capabilities, ensuring compliance with both state and federal tax regulations without the hassle of manual data entry.
For businesses, Vezgo provides essential tools for portfolio and wealth trackers, allowing financial advisors and tax professionals to manage client portfolios efficiently. It also integrates with leading tax and accounting software, making crypto tax reporting more accurate and efficient. By leveraging Vezgo’s API, users can minimize tax errors, stay compliant with IRS requirements, and optimize their financial strategies. Whether you are a trader, investor, or tax professional, Vezgo simplifies the complexities of crypto taxation while offering seamless data integration across various platforms.
FAQs
Here are answers to questions you may have about crypto tax in the US:
How is Crypto Taxed in the USA?
Cryptocurrency is taxed as property in the United States, subject to capital gains tax when sold, traded, or used for purchases. If you hold crypto for one year or less before selling, profits are taxed as short-term capital gains, which follow regular income tax rates. If you hold for over a year, profits qualify as long-term capital gains, taxed at lower rates. Additionally, suppose you earn cryptocurrency through mining, staking, airdrops, or payments. In that case, the IRS treats it as ordinary income, which must be reported and taxed based on its fair market value at receipt.
Do You Have to Report Crypto Under $600 in the USA?
All cryptocurrency transactions must be reported to the IRS, regardless of the amount. The $600 threshold often applies to income reporting requirements for third-party payment platforms, but it does not exempt individuals from reporting their crypto gains, losses, or income. Whether you made a small profit from selling crypto or received a small amount as payment, it must still be included in your tax return. Keeping accurate records of all transactions ensures proper compliance with IRS rules.
Do I Pay Taxes If I Transfer Crypto?
Transferring cryptocurrency between your own wallets or exchange accounts is not taxable, as it does not involve selling, trading, or using crypto for purchases. However, if the transfer includes a fee paid in crypto, the IRS considers that a taxable disposal, and you may owe taxes on any gains related to the fee amount. Tracking cost basis and transaction details is vital to ensure accurate reporting and compliance with tax regulations.
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