Introduction
Cryptocurrency taxation can be more complex than many investors realize. The IRS has been increasing enforcement on crypto tax compliance, making it essential to understand how digital assets are taxed and reported. Whether you are a seasoned investor or new to crypto, staying informed about tax rules can help you avoid penalties and ensure compliance with IRS regulations.
This guide explains how cryptocurrency is taxed, the latest IRS rules for 2025, and how to report crypto transactions accurately.
Do You Need to Report Cryptocurrency on Your Taxes?
Yes. The IRS classifies cryptocurrency as property, meaning every crypto transaction—including trading, selling, and earning rewards—has potential tax implications. Even if you incur losses, reporting all crypto activities is necessary to remain compliant with tax laws and avoid IRS scrutiny.
Key Changes to Crypto Tax Rules in 2025
Starting January 1, 2025, significant changes to cryptocurrency tax regulations will impact how transactions are reported. Here’s what investors need to know:
Form 1099-DA – All U.S. cryptocurrency exchanges will be required to track and report user transactions on Form 1099-DA, a new tax form specifically designed for digital assets.
Wallet-by-Wallet Accounting – Previously, investors could use a universal accounting method to calculate cost basis. However, from January 1, 2025, cost basis must be determined on a wallet-by-wallet basis.
Crypto Transfers – Unlike traditional brokerage accounts that communicate cost basis when stocks are transferred, cryptocurrency transactions currently require investors to track their own cost basis and holding periods. In the future, crypto may adopt a similar automated system for easier reporting.
Filing Past Crypto Taxes – With new tracking requirements, investors should ensure previous years’ taxes are correctly filed, as missing reports could create complications. Addressing past taxes now can prevent compliance issues as IRS enforcement increases.
Evolving Regulations – As regulatory changes continue, taxpayers should monitor updates on crypto taxation and consider seeking professional tax guidance. Filing extensions remain an option to avoid late penalties.
How Is Cryptocurrency Taxed?
Cryptocurrency transactions are subject to taxation under two main categories:
Capital Gains Tax – Applies when selling or trading crypto for a profit.
Income Tax – Applies when earning cryptocurrency through staking, mining, or other activities.
These tax rules cover Bitcoin, altcoins, NFTs, stablecoins, and other digital assets.
Crypto Capital Gains Tax
Capital gains tax is imposed when you sell or trade cryptocurrency for more than its original purchase price.
Short-term capital gains – Applies to assets held for one year or less and is taxed at the same rate as ordinary income (10-37%).
Long-term capital gains – Applies to assets held for more than one year and is taxed at 0%, 15%, or 20%, depending on the taxpayer’s income level.
The capital gain or loss formula:
Sales Proceeds - Cost Basis = Capital Gain/Loss
Each crypto sale or transaction requires individual calculation, making accurate reporting crucial for compliance.
Crypto Income Tax
Cryptocurrency received as payment, staking rewards, mining, interest, or other earnings is considered taxable income. The IRS treats this income like wages, with tax rates ranging from 10% to 37%, depending on the individual’s total income.
The taxable amount is based on the fair market value (FMV) in USD at the time of receipt.
For example:
If 0.5 ETH is earned through staking and 1 ETH is valued at $1,000, the taxable income reported is $500.
If the cryptocurrency is later sold or exchanged, the cost basis remains $500, and any profit from resale is subject to capital gains tax.
Conclusion
With the IRS increasing oversight on cryptocurrency taxation, investors must stay updated on the latest regulations to avoid penalties and ensure compliance. Understanding capital gains and income tax rules, as well as the new 1099-DA reporting requirements, is essential for accurate tax filing.
For expert assistance in managing cryptocurrency taxes, Block3 Finance provides professional support to help individuals navigate IRS compliance, tax optimization, and accurate reporting.
If you have any questions or require further assistance, our team at Block3 Finance can help you.
Please contact us by email at inquiry@block3finance.com or by phone at 1-877-804-1888 to schedule a FREE initial consultation appointment.
You may also visit our website (www.block3finance.com) to learn more about the range of crypto services we offer to startups, DAOs, and established businesses.