How to Report Crypto on Your Taxes (Step-By-Step) | CoinLedger (2024)

Not sure how to report your cryptocurrency taxes?

In this guide, we’ll break down how you can report your cryptocurrency gains, losses, and income in just 5 easy steps.‍

Summary: Report crypto taxes in 5 steps

There are 5 steps you should follow to file your cryptocurrency taxes in the US:

1. Calculate your crypto gains and losses
2. Report gains and losses on IRS Form 8949
3. Include your totals from 8949 on Schedule D
4. Include any crypto income on Schedule 1 or Schedule C
5. Complete the rest of your tax return

We’ll break down these 5 steps in detail below!

If you’re looking for an easy way to simplify the tax reporting process, crypto tax software like CoinLedger can help! Just connect your wallets and exchanges and let the platform generate complete tax forms in minutes.

How do I answer the crypto question on Form 1040?

Before we walk through our 5 steps for tax reporting, we should address the cryptocurrency question on Form 1040. This is one of the first things that most taxpayers will see on their return:

“At any time during 2023, did you: (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

If you earned cryptocurrency income, disposed of a crypto-asset or received cryptocurrency as a gift, you should answer ‘Yes’ to this question.

The IRS asks this question for information-gathering purposes. Answering ‘Yes’ will not increase your tax liability or your risk of an audit. However, intentionally lying on this question is considered tax fraud.

1. Calculate your crypto gains and losses

Summary: Get a complete record of your transaction history, and then calculate your gains and losses from each disposal.

Every time you dispose of your cryptocurrency, you’ll recognize capital gains or capital losses that need to be reported on your taxes. Examples of cryptocurrency disposals include the following:

• Selling your cryptocurrency for fiat
• Trading your cryptocurrency for another cryptocurrency
• Buying goods and services with cryptocurrency

To calculate your gain or loss from each transaction, you’ll need to track how the price of your crypto has changed since you originally received it.

Here’s a formula you can use to calculate your gains and losses:

In this case, your proceeds are what you received for disposing of your cryptocurrency. Typically, this is the fair market value of your crypto at the time of disposal, minus the cost of any fees related to your disposal.

Meanwhile, your cost basis is your cost for acquiring your cryptocurrency. This is typically the fair market value of your crypto at the time of receipt, plus the cost of any fees related to the acquisition.

Once you’ve finished your calculations, you can report your gains and losses on Form 8949.

How to report your capital gains/losses

To better understand how to calculate your capital gains and losses, let’s take a look at an example.

Unfortunately, these calculations aren’t always so simple. An active cryptocurrency trader may have thousands of buys and sells in a year, making it difficult to track their original cost basis.

Cryptocurrency tax software like CoinLedger can make it easy to track your cryptocurrencies. Simply connect your exchanges, import your historical transactions, and let the software crunch your gains and losses for all of your transactions in seconds.

2. Complete IRS Form 8949

Summary: Report all your disposals of cryptocurrency — short-term and long-term — on Form 8949.

If you dispose of cryptocurrency during the tax year, you’ll need to fill out IRS Form 8949. The form is used to report the sales and disposals of capital assets — including stocks, bonds, and cryptocurrencies.

Let’s break down how you can fill out Form 8949.

Short-term vs. long-term disposals

Form 8949 consists of two parts: Part I for Short-term and Part II for Long-term.

If you disposed of your cryptocurrency after less than 12 months of holding, your gain or loss should be reported on Part I. If you dispose of your crypto after more than 12 months of holding, your gain or loss should be reported on Part II.

Was your transaction reported on Form 1099?

The first step is to check the relevant box at the top of the sheet: A, B, or C.

1. Short-term transactions reported on Form(s) 1099-B, showing basis was reported to the IRS
2. Short-term transactions reported on Form(s) 1099-B, showing basis was not reported to the IRS
3. Short-term transactions not reported to you on Form 1099-B

At this time, most exchanges don’t issue Form 1099-B to customers and the IRS. As a result, you’ll most likely select option C.

How to report your gains and losses on Form 8949

Next, you’ll need to fill in the following information for each of your gains and losses.

• A description of the crypto-asset you sold (a)
• The date you originally acquired your crypto-asset (b)
• The date you sold or disposed of the crypto-asset (c)
• Proceeds from the sale (fair market value) (d)
• Your cost basis for purchasing the crypto-asset (fair market value) (e)
• Your gain or loss (h)

Want a demonstration of how to fill out Form 8949? Check out the video below.

Do I need to report my capital losses?

In addition to your capital gains, you should report your short-term and long-term cryptocurrency losses on Form 8949.

Remember, capital losses come with tax benefits! Capital losses can offset your capital gains and up to $3,000 of personal income.

For more on this subject, check out our complete guide to tax-loss harvesting.

3. Include totals from Form 8949 on Schedule D

Summary: Take your total gain/loss on Form 8949 and report it on Schedule D.

Once your Form 8949 is filled out, take your total net gain or net loss and include it on Schedule D.

Schedule D — attached to Form 1040 — is used to report gains and losses from all sources. In addition to your short-term and long-term gains from cryptocurrency, other line items reported on Schedule D include Schedule K-1s via businesses, estates, and trusts.

4. Include any crypto income

Summary: Sum up your earned cryptocurrency income and report it on Schedule 1 or Schedule C.

If you earned crypto through mining, staking, interest, referral rewards, or as compensation for your labor, you will recognize ordinary income subject to income tax.

To accurately report your income, you should account for all the cryptocurrency you earned during the year. You’ll recognize income based on the USD value of your crypto at the time of receipt.

What form should I use to report my crypto income?

The form you use to report your ordinary income from cryptocurrency may vary depending on your specific situation.

Schedule 1 - If you earned crypto from airdrops, forks, or other crypto wages and hobby income, this is generally reported on Schedule 1 as other income. Most investors will use this form to report ordinary income from cryptocurrency.

Schedule C - If you earned crypto as a business entity, like receiving payments for a job or running a cryptocurrency mining operation, this is likely treated as self-employment income and reported on Schedule C. If you earned business income,you may be able to deduct related costs such as electricity.

5. Complete the rest of your tax return

Now that you have reported your capital gains and income, you should be finished reporting all the crypto-related transactions on your tax return. Once you’ve filled out the rest of your tax forms, you should be ready to submit your tax return to the IRS!
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Do I need to report crypto on my tax return?

In the United States, cryptocurrency is subject to ordinary income and capital gains tax.

While crypto transactions are pseudo-anonymous, it’s important to remember that the IRS can track transactions through exchange-provided 1099 forms. In the past, the agency has even worked with contractors like Chainalysis to analyze publicly-available transactions on blockchains like Bitcoin and Ethereum.

For more information, check out our complete guide to cryptocurrency taxes.

How much tax do I pay on cryptocurrency?

The tax rate you pay on cryptocurrency varies depending on multiple factors — including your holding period and your tax bracket.

You’ll pay income tax when you earn cryptocurrency income or dispose of crypto after less than 12 months of holding. Depending on your income bracket, this can vary between 10-37%.

You’ll pay long-term capital gains tax when you dispose of cryptocurrency after 12 months or more of holding. Depending on your income bracket, the tax rate on your long-term disposals will range from 0-20%.

For more information, check out our guide to cryptocurrency tax rates.

How are my crypto transactions taxed?

Let’s quickly walk through how different types of crypto transactions are taxed.

• Selling crypto: When you sell crypto, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.
• Crypto-to-crypto trades: When you trade crypto for another cryptocurrency, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.
• Moving crypto between wallets: Moving crypto between wallets you own is non-taxable! Because the ownership of your crypto has not changed, there is no taxable event.
• Staking/mining: When you earn cryptocurrency through staking and mining, you’ll recognize income based on the fair market value of your rewards at the time of receipt. When you dispose of your staking/mining rewards, you’ll incur a capital gain or loss depending on how the price of your crypto changed since you originally received it.

Airdrops: When you earn cryptocurrency through airdrops, you’ll recognize income based on the fair market value of your rewards at the time of receipt. When you dispose of your airdrop rewards, you’ll incur a capital gain or loss depending on how the price of your crypto changed since you originally received it.

Do exchanges like Coinbase report to the IRS?

Exchanges like Coinbase do report to the IRS through 1099 forms.

Many exchanges issue Form 1099-MISC to customers who have $600 or more of income.

Starting in the 2025 tax year, all exchanges operating in the United States will be required to issue Form 1099-DA to report capital gains and losses to the IRS.

Do I need to report cryptocurrency under $600?

Typically, exchanges only issue Form 1099-MISC for cryptocurrency income if you’ve earned at least $600 of rewards. However, you are required to report all of your taxable income from cryptocurrency on your tax return — regardless of the total amount. Not reporting your income is considered tax fraud.

Get started with cryptocurrency tax software

There’s no need to fill out your tax forms by hand. Today, more than 500,000 investors use CoinLedger to generate a complete tax report in minutes.

You’ll be able to automatically import your transactions from exchanges like Coinbase and blockchains like Ethereum in just a few clicks.

Based on this data, CoinLedger automatically generates your crypto tax forms. You can then upload your reports directly into TurboTax or TaxAct to include with the rest of your tax return or send them directly to your tax professional.

Get started with a free CoinLedger account today.