If you own Bitcoin or other digital assets in the United States, you are responsible for reporting gains, losses, and certain types of income related to your cryptocurrency activity.
The IRS continues to treat virtual currency as property, not currency, for federal tax purposes (IRS Notice 2014-21 and Rev. Rul. 2019-24). While the framework remains the same, reporting and enforcement have expanded significantly in recent years.
The IRS now requires all taxpayers to answer a digital asset question on Form 1040 each year, even if no tax is due. Failing to answer this question accurately can create compliance issues.
You generally have a taxable event when cryptocurrency is sold, exchanged, or used, including:
These transactions typically result in capital gains or ordinary income, depending on the nature of the activity.
Not all crypto activity creates a taxable event. Common non-taxable events include:
Giving cryptocurrency as a gift is generally not a taxable event for the donor. However:
The recipient generally assumes the donor’s cost basis.
Certain transactions require special attention, including:
These events often create ordinary income at fair market value on the date received.
The IRS continues to expand cryptocurrency reporting requirements. Broker reporting for digital assets (Form 1099-DA) has been finalized, with phased-in reporting beginning for future tax years. This means the IRS will increasingly receive third-party data matching your crypto transactions.
Taxpayers are responsible for maintaining complete and accurate records, including:
Without proper records, it becomes difficult to accurately report gains and losses — and errors can be costly.
Cryptocurrency taxation is no longer a gray area. The IRS expects full reporting of digital asset activity, and enforcement continues to increase. Proper tracking, accurate classification of transactions, and professional guidance can help avoid penalties and unnecessary audits.
