Crypto Taxes in 2025: A Complete Guide

As cryptocurrency has grown from a niche industry into a mainstream financial asset, understanding your crypto tax obligations is no longer optional — it's essential. This has led many to wonder: Do you pay taxes on crypto? Which crypto activities are taxed in the U.S., and how much do they owe the tax man?

In recent years, the U.S. Internal Revenue Service (IRS) has ramped up its focus on digital assets. Whether you’re paying in Bitcoin, trading altcoins, earning through staking, or diving into DeFi, each transaction could trigger capital gains or income tax, and figuring out these tax implications can feel overwhelming.

In this comprehensive guide, we’ll walk you through everything you need to know about crypto taxes in the U.S., including which crypto activities are taxable, current tax rates, and strategies to legally reduce your cryptocurrency tax burden. Let’s dig in!

Crypto Taxes: Can the IRS Track Your Crypto?

One of crypto's core principles is anonymity, so you might be wondering: how could the IRS even know you hold any crypto? The answer lies in traceability. Every transaction on a blockchain is publicly viewable, enabling the IRS to monitor and track digital asset movements. With all major centralised exchanges enforcing Know Your Customer (KYC) regulations, combined with the IRS's increased efforts to uncover crypto tax evaders, avoiding crypto taxes has become practically impossible.

KYC procedures require exchanges to gather personal data such as your name, address, and sometimes even biometric details. This means that each time you register with a centralised exchange, your transactions and personal details are shared with the IRS.

Moreover, in 2023, the IRS proposed new rules for cryptocurrency brokers that could require even decentralised exchanges to enforce KYC requirements and share user data. This proposal prompted significant pushback from the crypto community, as implementing these rules would be nearly impossible. Fortunately, some of these regulations have been delayed.

One thing remains clear — if you fail to report your crypto gains or under-report them, the penalties can be severe. You could face fines of up to $100,000 or even prison time, making it more crucial than ever to understand your crypto tax obligations.

Understanding Capital Gains Tax: Rates, Cost Basis and Scenarios

The IRS treats cryptocurrency as property, not currency, meaning that any transaction involving crypto — whether you're selling, trading, or spending it — may trigger capital gains tax. The amount of tax you owe depends on how long you've held the asset and your total gain. Let’s explore how this works in practice.

What Is Capital Gains Tax?

A capital gain occurs when you sell or exchange crypto for more than you initially paid, a value called your cost basis. Any profit made is taxable. On the flip side, if you sell crypto for less than the cost basis, you incur a capital loss, which can be used to offset gains — more on that later.

The IRS distinguishes between short-term and long-term capital gains, and your holding period determines the crypto tax rate:

• Short-term capital gains apply if you’ve held the asset for less than a year. These gains are taxed at your ordinary income tax rate, ranging from 10% to 37% depending on your income bracket.
• Long-term capital gains apply if you’ve held the asset for more than a year. These are taxed at significantly lower rates—either 0%, 15%, or 20%.

It's important to note that special rules apply for NFTs classified as collectables, which are subject to a 28% capital gains tax.

Which Transactions Trigger Capital Gains Tax?

There are three common crypto activities that trigger capital gains tax, and it’s essential to know when to report these events:

• Selling cryptocurrency for fiat currency (e.g., USD, EUR).
• Trading one cryptocurrency for another, such as swapping BTC for ETH.
• Using cryptocurrency to purchase goods or services, such as buying a car or paying for online subscriptions.

Here's a table covering all crypto transactions subject to capital gains tax:

In all cases, the IRS considers these as taxable events, and you must report any gains or losses on your tax return.

In contrast, certain activities are not taxable, like buying crypto with fiat or holding it in your wallet. Transferring crypto between your personal wallets is also tax-free.

Short-Term vs. Long-Term Capital Gains Tax Rates

Tax rates for short-term and long-term capital gains vary based on income and filing status. Short-term gains align with ordinary income rates, meaning higher earners pay more. For long-term holders, rates are more favourable. Note that these tax brackets apply for 2025. 

Long-term capital gains tax rates:

For high-income earners, long-term capital gains tax rates could increase to 39.6% under President Joe Biden’s budget proposals. However, Vice President Kamala Harris has introduced a slightly softer approach, proposing an increase to 28% instead.

Capital Gains Tax Breaks for Low-Income Earners

Conversely, if you fall into a lower income bracket, there are opportunities to benefit from tax breaks. For example, if your total income (including crypto gains) is under $48,350 as a single filer in 2024, you won’t pay any capital gains tax on long-term gains. This exemption also extends to higher thresholds for those filing as head of household or married filing jointly.

State Capital Gains Tax

In addition to federal taxes, many states also impose capital gains taxes. Some states, however, have no capital gains tax at all, including Florida, Texas, and Wyoming. Be sure to check your state’s specific tax rules as they can significantly impact your total tax liability.

Understanding Cost Basis in Crypto Transactions

Your cost basis is the original value of your crypto, including the purchase price and any associated fees, such as trading or transfer costs. This number is crucial because it determines the size of your capital gain or loss.

To calculate your capital gain or loss, you use the formula:

Selling Price - Cost Basis = Capital Gain (or Loss)

For example, if you purchased 1 BTC for $20,000 and later sold it for $30,000, your capital gain would be $10,000. If you sold it for $15,000 instead, you would incur a $5,000 capital loss.

Choosing the Right Cost Basis Method

The IRS allows various methods to calculate the cost basis of your crypto assets, and choosing the right one can significantly impact your tax liability. Here are the most common methods:

• FIFO (First In, First Out): The first asset you purchased is the first one sold.
• LIFO (Last In, First Out): The most recently purchased asset is the first sold.
• HIFO (Highest In, First Out): The most expensive asset you bought is sold first.
• Specific Identification (Spec ID): You select the specific asset you’re selling, as long as you can identify it with transaction records. This method gives you the most flexibility in managing your taxes but requires meticulous record-keeping.

Choosing the right method can make a huge difference. For example, say you purchased 1 BTC for $10,000 in 2018 and another for $40,000 in 2021. You sell 1 BTC in 2022 for $50,000.

• If you use FIFO, the gain is $40,000 ($50,000 - $10,000).
• If you use LIFO, the gain is only $10,000 ($50,000 - $40,000).

In this scenario, LIFO would drastically reduce your taxable gain, showing why selecting the right cost basis method is critical.

Crypto Income Tax: What's Considered Taxable?

While many crypto transactions fall under capital gains, certain activities trigger income tax instead. Anytime you are seen as “earning” crypto, it’s likely taxable as income. Here’s a breakdown of when crypto is considered income and how it's taxed.

What is Crypto Income Tax?

Crypto income is taxed like regular income, and this tax applies to any transaction where you receive crypto as a payment or reward. The value of the crypto you receive is treated as income on the day you receive it, with the fair market value calculated in USD. This amount is subject to federal income tax and, in some cases, state income tax.

When Does Crypto Count as Income?

Several crypto activities are taxed as income by the IRS:

• Payment in crypto: Crypto received as salary or payment for services is taxable at its fair market value when received.
• Mining rewards: Crypto earned from mining—even as a hobby—counts as income and, if mined on a larger scale, can also be subject to self-employment taxes.
• Staking and DeFi rewards: Rewards from staking or participating in decentralised finance (DeFi) platforms are viewed as income.
• Airdrops and hard forks: New coins received from airdrops or hard forks are considered income, taxed based on their value at the time of receipt.
• Other rewards: Income from referral bonuses, liquidity pool tokens, and GameFi participation is taxable.

How to Calculate Crypto Income

To determine your crypto income, calculate the fair market value in USD on the day of receipt. For instance, if you earned 0.5 ETH from staking rewards and ETH’s value was $2,000 on that day, your taxable income would be $1,000.

Crypto Tax Loss Harvesting Strategies

Tax loss harvesting is a strategy to reduce your tax liability by selling crypto at a loss to offset capital gains. This allows investors to take advantage of crypto's volatile nature to minimise their taxes effectively.

What is Crypto Tax Loss Harvesting?

Crypto tax loss harvesting involves selling an asset at a loss to create a capital loss, which can then be used to offset taxable capital gains. By reducing your overall capital gains, you lower your tax bill. Once the loss is realised, some investors may even buy back the asset at the lower price to hold for future gains. Here’s how it typically works:

• Sell or Trade at a Profit: You sell or trade your crypto at a profit, creating a taxable capital gain.
• Hold an Underperforming Asset: You also hold crypto that has decreased in value since purchase, resulting in an unrealised loss.
• Offset Gains with Losses: By selling the underperforming asset at a loss, you can use the capital loss to offset your gains.
• Rebuy the Asset: This reduces, or even eliminates, the tax you owe on your gains.

Matching Short-Term and Long-Term Losses

In the U.S., the IRS requires you to match short-term losses (for assets held less than a year) against short-term gains, and long-term losses against long-term gains. After matching the respective gains and losses, any remaining losses can be applied to offset gains of the opposite type. This process ensures that you maximise the benefit from each kind of loss.

Example: If you’ve held BTC for less than a year and sold it for a profit, this counts as a short-term gain. If you also sell ETH at a loss within the same timeframe, you can use that short-term loss to offset the BTC gain, reducing your taxable income.

Carrying Forward Unused Losses

One significant advantage of tax loss harvesting is the ability to carry forward unused losses. If your capital losses exceed your gains in a given year, you can deduct up to $3,000 against ordinary income. While there’s no limit to how many losses you can use to offset capital gains, the $3,000 limit applies to deductions from ordinary income. Any unused losses beyond this can be carried forward to future tax years.

When to Sell Crypto for Tax Loss Harvesting?

Timing is essential for tax loss harvesting. You only realise a gain or loss when you dispose of your crypto—whether that’s through selling, trading, or spending it. Unrealised losses are not counted until you’ve sold the asset. Savvy investors use market dips to sell underperforming assets, knowing they can repurchase them later, potentially at a lower price.

Tracking unrealised gains and losses throughout the year is crucial for spotting tax loss harvesting opportunities. Many investors wait until the end of the financial year to assess their portfolio, but crypto’s volatile nature may provide opportunities throughout the year to harvest losses.

Wash Sale Rules

It’s important to be aware of the wash sale rule. Currently, crypto isn’t subject to the same wash sale rule as stocks, but President Biden's 2025 budget proposal aims to change that. The wash sale rule disallows claiming a loss if you repurchase the same asset within 30 days. As it stands, short-term tax loss harvesting with crypto remains legal in the U.S., so it’s wise to take advantage of it while this option is still available.

Strategies to Maximise Tax Loss Harvesting

To fully take advantage of crypto tax loss harvesting, here are a few tips:

• Monitor Your Portfolio: Regularly track realised gains and unrealised losses to identify opportunities.
• Harvest Losses Year-Round: Especially during volatile periods, to optimise your tax benefits.
• Use a Crypto Tax Calculator: Ensure your strategy is accurate and that you’re aware of potential gains or losses.
• Be Mindful of the Long-Term Impact: Reducing your cost basis when you repurchase crypto at a lower price might result in larger capital gains later down the line.

By using these strategies, you could potentially reduce your tax bill significantly, especially while the wash rule doesn’t apply to crypto.

Reporting Your Crypto Taxes

Now, how do you actually report your crypto taxes? Let’s just say it’s not the most fun way to spend your weekend, and understanding all the IRS forms can definitely feel overwhelming. So, we’re going to break it all down and even tell you how you could possibly bypass dealing with all the forms in the first place.

When Are Crypto Taxes Due?

The deadline for filing your 2024 crypto taxes is April 15, 2025, aligning with the standard U.S. tax filing deadline. U.S. expats receive an automatic extension until June 15, 2025. For additional time, you can file for an extension, extending your filing date to Oct. 15, 2025. Remember: An extension only applies to filing, not payment, so any taxes owed should be settled by the original due date to avoid penalties.

Key IRS Forms for Crypto Reporting

Before diving into each individual form, it's important to understand what IRS forms are and why they're necessary. IRS tax forms are official documents used to report income, gains, and losses to the U.S. government. When it comes to cryptocurrency, these forms allow you to report different types of taxable events, like capital gains, income from staking, and self-employed crypto earnings.

The forms that are relevant to crypto taxation are:

• Form 8949: This form is used to report crypto capital gains and losses from activities like selling, trading, or spending crypto. It includes details like dates of acquisition and disposal, and the corresponding gains or losses.
• Schedule D: Summarises your total net capital gains or losses from all investments, including crypto, using the information from Form 8949.
• Schedule 1 (Form 1040): Used to report additional income, such as crypto earned from staking, airdrops, or forks.
• Schedule C: For self-employed individuals earning income through crypto-related activities, this form captures both income and related business expenses.

The specific forms you’ll need depend on the crypto activities you’ve engaged in during the year.

Manual Filing vs. Crypto Tax Software

Filing your taxes manually can be a tedious process, especially if you have a large number of transactions to report. Crypto tax software simplifies this by automatically calculating your gains and losses, generating the necessary IRS forms, and even integrating with your crypto exchanges and wallets to track all your transactions seamlessly.

Using crypto tax software ensures accuracy while saving you valuable time, so let’s explore some platforms that can take your tax reporting to the next level.

Best Crypto Tax Software

If you’re looking for our full analysis of the best crypto tax software in 2025, you can check it out here. For this article, we’ll focus on three of the most popular options in the market.

Koinly

Koinly is a powerful crypto tax software designed for both tax reporting and portfolio tracking. It supports over 20 countries, including the U.S., and integrates with more than 25,000 cryptocurrencies, 220 blockchains, and 420 exchanges.

Koinly generates tax forms like Form 8949 and Schedule D, which users can submit directly to their tax authorities. Additionally, it matches transfers between exchanges and personal wallets. This ensures that your transactions are tracked correctly and that you aren’t taxed multiple times on transfers between your own accounts, a common issue when handling multiple wallets and exchanges.

Koinly offers both free and paid plans, accessible to users with varying needs. While the free plan provides essential tools for tracking and reporting, paid plans offer more advanced features such as automated tax forms. Pricing for paid tiers starts at $49 for the Newbie plan (100 transactions), $99 for the Hodler plan (1,000 transactions), and $179 for the Trader plan (3,000+ transactions).

We also have a detailed guide on Koinly, which you can check out here.

CoinLedger

CoinLedger is a highly regarded crypto tax software that simplifies tax reporting by integrating with over 350 exchanges, 181 DeFi platforms, and popular wallets like MetaMask, Trust Wallet, and Exodus. Designed to handle both cryptocurrency and NFT tax reporting, CoinLedger automates the generation of tax forms, making it easy for users to submit accurate reports to tax authorities.

For traders and investors who want to keep an eye on their portfolios, CoinLedger also offers a portfolio tracking tool. Users can monitor their profits and losses, track holding periods, and view tax liabilities as they occur throughout the year.

CoinLedger offers a free version that allows users to import their transaction history and calculate their net capital gains and losses. However, if one wishes to generate full tax reports, they’ll need to choose from one of CoinLedger’s paid plans. Pricing starts at $49 for the Hobbyist plan (100 transactions), $99 for the Investor plan (1,000 transactions), and $199 for the Unlimited plan, which supports unlimited transactions.

CoinTracking

CoinTracking bills itself as a leader in cryptocurrency reporting and tracking, with over 1.8 million users. It stands out with its detailed portfolio tracking and tax reporting capabilities, making it trusted by both individual investors and institutions. The platform supports over 300 exchanges and offers 25 customizable reports for insights into profits, losses, and tax liabilities.

CoinTracking is particularly detailed, allowing users to know exactly how their portfolio is performing, how diversified they are, and what their tax burden is going to be throughout the year. The platform's robust analytics also include historical data on over 32,000 coins, providing deep insights into trading history and tax impacts.

CoinTracking offers a free plan with essential features like tracking up to 200 transactions and generating capital gains reports. For more advanced users, paid plans include the Pro plan at $12.99 per month (3,500 transactions), the Expert plan at $19.99 per month (up to 100,000 transactions), and the Unlimited plan at $54.99 per month for unlimited transactions. These paid options provide features like automatic imports from exchanges, CSV exports, advanced tax tools, and priority customer support.

We also have an in-depth guide on CoinTracking, along with a 10% discount when you sign up using our special offer.

Strategies to Minimise Crypto Taxes

There are several effective strategies that crypto investors can employ to legally minimise their tax burden, particularly within the U.S. tax system. Before diving into more thorough explanations, here’s a brief table summarising the key strategies:

Now, let’s go over these approaches in detail:

HODL to Avoid Short-Term Capital Gains

One of the easiest ways to reduce your tax liability is to simply hold your crypto for over a year before selling. Why? Because the IRS taxes short-term gains at your ordinary income tax rate, which can be as high as 37% for high-income earners. On the other hand, long-term capital gains—assets held for more than a year—are taxed at much lower rates, ranging from 0% to 20%. If you're close to that one-year mark, consider waiting to reduce your taxable burden.

Take Advantage of Capital Losses

If you've experienced losses on your crypto, don’t let them go to waste. You can use these losses to offset your capital gains, effectively lowering the total amount of tax you owe. Additionally, even if your losses exceed your gains, you can still offset up to $3,000 against other income, such as your salary. Better yet, any unused losses can be carried forward to future tax years, giving you flexibility in managing your tax liability over time.

Tax-Loss Harvesting

This strategy involves selling crypto at a loss to reduce taxable gains. One major advantage is that cryptocurrencies aren’t yet subject to the IRS wash sale rule, which prohibits investors from claiming a tax deduction if they repurchase the same asset within 30 days. This loophole allows you to sell and immediately repurchase the same crypto asset to realise a loss while maintaining your position—perfect for offsetting gains and reducing your tax bill. 

Gifting Crypto

Under U.S. tax law, you can gift up to $18,000 per year per recipient without incurring any gift tax. This means that you could gift crypto to family members or friends without triggering a taxable event. In addition, if the recipient is in a lower tax bracket, they could potentially dispose of the asset at a lower tax rate than you would have paid, further maximising tax efficiency.

Donate Crypto to Charity

When you donate cryptocurrency to a registered charitable organisation, not only do you avoid paying capital gains tax on the donated amount, but you can also claim a deduction for the fair market value of the donation. This is an excellent strategy for those looking to give back while also reducing their tax obligations. For donations over a certain amount, you’ll need proper documentation and possibly an appraisal.

Invest in an IRA or Retirement Account

Investing in cryptocurrency through an Individual Retirement Account (IRA) or 401(k) allows you to defer taxes. For example, with a self-directed IRA, you can invest directly in crypto assets, and you won’t be taxed until you start making withdrawals in retirement. Several platforms offer crypto IRAs, and this strategy can lead to substantial tax savings if you plan on holding your crypto for the long term.

Relocate to a Low-Tax State or Country

In the U.S., states like Florida, Texas, and Nevada have no state income tax, which can significantly reduce your overall tax liability. Some crypto investors even move abroad to countries like Switzerland or the United Arab Emirates, where capital gains on crypto are either minimal or entirely tax-exempt. While this strategy requires considerable life changes, it can offer enormous savings on taxes. 

Hire a Crypto-Savvy CPA

Navigating the complex and ever-evolving world of crypto taxes can be daunting. A Certified Public Accountant (CPA) with expertise in cryptocurrency can help you identify opportunities to minimise your tax bill, ensure that you are compliant with all IRS regulations, and potentially save you thousands in taxes. Though this option can be pricey, it may well be worth the investment.

Crypto Taxes: Conclusion

Doing your crypto taxes in the U.S. is not a simple endeavour and still has a long way to go in terms of ease of reporting, especially if you're looking to fill out the IRS forms yourself. However, with the help of crypto tax software, the entire process can be significantly simplified.

If you happen to have a sizable portfolio, it might not be a bad idea to consult a crypto-savvy accountant. While this could be a bit costly, the benefits are often well worth it. After all, there are plenty of nuances that could impact your unique situation — details you simply won’t find in online guides.