Do You Have to Pay Taxes on Crypto if You Didn’t Sell?
Do I pay taxes if I don't sell my cryptocurrency?
You do not need to pay taxes for simply holding cryptocurrency. For example, if you buy BTC with US dollars and hold it indefinitely, you will not pay tax.
Example: Holding cryptocurrency
Sara buys $10,000 of BTC.
Sara stores her BTC in her cold wallet, and does not sell her holdings.
Sara has no tax reporting obligation.
When do I pay taxes on cryptocurrency?
You owe taxes when you earn or dispose of cryptocurrency.
When do I pay capital gains tax on crypto?
When you dispose of your cryptocurrency, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.
Examples:
Selling your crypto
Trading your crypto for another cryptocurrency
Using your crypto to make a purchase
When do I pay income tax on crypto?
Ordinary income tax: When you earn cryptocurrency, you’ll owe ordinary income tax based on the fair market value of your crypto at the time of receipt.
Examples:
Staking rewards
Mining rewards
Referral rewards
Do I need to pay taxes if I reinvested my crypto?
All disposals of cryptocurrency are subject to tax — regardless if you reinvest the proceeds of your sales afterwards. Consider the following scenario.
Example: Reinvesting your crypto
James buys $3,000 of ETH.
James sells his ETH for $4,000.
James buys $4,000 of BTC.
In this case, James will have to recognize $1,000 of capital gain.
Crypto tax-free events
The following events are not subject to tax.
Holding cryptocurrency
Transferring your crypto between different wallets you own
Receiving a cryptocurrency gift
Donating crypto
How do I report cryptocurrency on my taxes?
To accurately report crypto taxes, it’s important to keep detailed records of all of your cryptocurrency transactions. This should include the following information:
A description of the crypto-asset you sold
The date you originally acquired your crypto-asset
The date you sold or disposed of the crypto-asset
Proceeds from the sale (fair market value in USD)
Your cost basis for purchasing the crypto-asset (fair market value in USD)
Your gain or loss
Any fees related to buying or selling the crypto-asset
Alternatively, you can use crypto tax software to track your transactions and automatically generate your tax forms!
What forms should I use to report crypto on my taxes?
Let’s walk through the forms you can use to report your crypto transactions.
Form 8949: This form is used to report your crypto gains and losses. You’ll need to report each disposal of cryptocurrency along with its date and price when you acquired and disposed of it.
Form 1040 Schedule 1: This form is used to report your income from cryptocurrency. You’ll report your income on the section labeled ‘Other Income’.
Do I have to report crypto on my taxes if I have losses?
You are required to report your losses from cryptocurrency. Remember, crypto losses come with tax benefits!
Capital losses can offset capital gains from cryptocurrency, stocks, and other assets. If you have a net loss for the year, you can offset up to $3,000 of capital losses.
For more information, check out our guide to crypto tax-loss harvesting.
How do I avoid capital gains tax on crypto?
There’s no way to legally evade your crypto taxes. However, the following strategies can help you reduce your crypto tax bill legally:
Tax-loss harvesting your crypto
Holding cryptocurrency in an IRA
Claiming crypto donations as a deduction
For more information, check out our guide to avoiding crypto taxes legally.
How do I take profits on crypto without selling?
If you want to take profits from cryptocurrency without triggering a tax liability, there are some options available.
Crypto lending: By using your cryptocurrency as collateral for a loan, you can get access to USD without selling your crypto!
Staking: Staking can be a great way to earn passive income while you continue to hold your crypto. However, it’s important to note that you are required to pay income tax on your staking rewards.
What happens if I don’t report crypto on my taxes?
Not reporting your cryptocurrency income is considered tax evasion — a felony with a maximum penalty of 5 years imprisonment and a fine of up to $100,000.
In the past, the IRS has worked with contractors like Chainalysis to match ‘anonymous’ crypto wallets to known individuals.
If you haven’t reported cryptocurrency on your tax return in previous tax years, you should file an amended tax return. The IRS is known to give more leeway to taxpayers who make a good-faith effort to file an accurate tax return.
Do I have to report crypto on taxes if I made less than $1,000?
All of your taxable events from cryptocurrency should be reported to the IRS, regardless of how much you made. Intentionally not reporting taxable income is considered tax evasion.
How to prepare your Crypto Taxes
Are you looking for a straightforward way to handle your digital asset taxes? Taxing Cryptocurrency offers a seamless, efficient solution for calculating your crypto tax obligations. Our firm is trusted by many, and with good reason: it makes crypto tax preparation easier than ever.
Here’s How Taxing Cryptocurrency Can Help with Your Crypto Taxes
Taxing Cryptocurrency’s digital asset reconciliation process is designed to simplify your digital asset tax calculations. We accurately track and calculate your gains, losses, and taxable events, so you don’t have to. In just a few weeks, you’ll have a full report ready for tax season.
