In the United States, cryptocurrency is generally taxed as property. Selling it for dollars, exchanging it for another digital asset, or spending it can create a capital gain or loss when you held it as a capital asset. Crypto you receive as wages, contractor pay, mining or staking rewards, or certain airdrops can instead be ordinary income when received. You must report taxable activity for the year it occurred even if no Form 1099-DA or other information return arrives.
This guide covers U.S. federal income-tax rules and IRS guidance available through October 13, 2026. State and local taxes, non-U.S. residence, entities, and unusual transactions can produce different results.
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The basic tax split: disposition versus receipt
Two questions determine most cryptocurrency tax reporting:
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- Did you receive an asset as payment or a reward? Wages, independent-contractor compensation, mining, staking, rewards, awards, and some airdrops can create ordinary income. A later sale or exchange of that received asset is a separate disposition calculation.
The IRS states: “Digital assets are treated as property, and the general tax principles applicable to all property transactions also apply to transactions involving digital assets.” The tax character depends on what happened, how the asset was held, and the facts of the transaction.
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Which crypto transactions can be taxable?
| Transaction | Typical federal tax question |
|---|---|
| Sell cryptocurrency for U.S. dollars or similar currency | Capital gain or loss if held as a capital asset; amount realized minus adjusted basis. |
| Exchange one digital asset for another | Generally a disposition of the asset given up, with gain or loss measured against its basis. |
| Use crypto to buy goods or services | Generally a disposition; the asset’s value when spent is compared with its basis. |
| Receive employee wages in digital assets | Wages are reported under the normal wage rules; the receipt also establishes a basis for later disposition. |
| Receive payment as an independent contractor | Generally business income, commonly reported through Schedule C when applicable; later disposition can create gain or loss. |
| Mining, staking, rewards, or awards | Income treatment depends on the activity and facts; the value when received can establish basis for a later sale. |
| Airdrop associated with a hard fork | Potential income issue; timing and amount depend on the specific facts and applicable IRS guidance. |
| Move coins between wallets you own | A transfer without a change in ownership or financial interest is not automatically a sale; document the source and destination and verify the facts. |
Not every protocol interaction fits one category. DeFi, lending, wrapped tokens, bridges, derivatives, lost keys, gifts, charitable transfers, and forks may require transaction-specific analysis.
How to calculate a capital gain or loss
For a capital asset, the general formula is:
Amount realized − adjusted basis = capital gain or loss
The amount realized is what you received, measured in U.S. dollars at the time of disposition. For a crypto-to-crypto exchange, it is generally the fair market value of what you received at the exchange time. For a purchase, it is the dollar value of the goods or services received. Basis is generally your cost, adjusted under applicable rules; an asset received as compensation or another income event can have a basis tied to the amount included in income.
Example: sale for dollars
You buy 0.20 bitcoin for $6,000, including any amount that belongs in basis under the applicable rules. You later sell that lot for $9,000. The capital gain is $3,000 before considering any transaction costs that affect the calculation. Keep the acquisition confirmation, sale record, dates, units, and fee information supporting both figures.
Example: exchange for another token
You acquired a token for $2,000 and later exchange it when its fair market value is $3,500 for a different token. The exchange can realize a $1,500 gain even though you did not receive dollars. The new token generally receives a basis determined under the applicable property rules, so preserve the exchange valuation and timestamps.
Example: spending crypto
You purchased an asset for $400 and later use it to pay a $900 invoice. The spending transaction can realize a $500 gain. The invoice, payment record, asset units, and valuation at payment time are part of the evidence for the calculation.
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Why the holding period matters
The IRS describes a short-term capital gain or loss when a capital asset was held for one year or less before disposition, and a long-term gain or loss when held for more than one year. The holding period is measured for the specific units disposed of, so acquisition and disposition dates must be retained at lot level.
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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsDo not apply a single tax-rate percentage without knowing the tax year, filing status, taxable income, and other facts. Short- and long-term character affects which federal rate rules apply, but the applicable rate is not determined by the asset name alone.
Crypto received as income
Employee compensation
Digital assets paid by an employer are treated as wages. Payroll reporting and withholding rules apply, and the amount included as wages generally becomes the starting basis for those units. A later sale or exchange is reported separately as a disposition.
Independent-contractor work
Payment in digital assets for services is generally business income for an independent contractor. When the activity is a trade or business, Schedule C and related self-employment reporting may apply. Record the dollar value when the payment is received, the payer, the units, and the wallet or account receiving them.
Mining, staking, rewards, and awards
The IRS identifies mining, staking, rewards, and awards as digital-asset income topics. The correct amount and timing depend on the activity and facts. Keep evidence of when units became available to you, the quantity, the dollar value used, and any statements or protocol records.
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Airdrops and hard forks
An airdrop related to a hard fork can raise an income question. Do not assume every fork, airdrop, or transfer has identical treatment. Identify when you obtained control, what the asset was worth, and whether the event fits current IRS guidance.
Two possible tax events
Receiving crypto as income and later disposing of it can create two separate reporting steps. First, report the receipt under the applicable income rules and establish basis. Second, calculate gain or loss when you sell, exchange, or spend the units. The second calculation compares the disposition value with that basis and the units’ holding period.
Which forms are commonly involved?
Forms depend on the activity and tax year. For individual capital dispositions, IRS guidance points to Form 8949 for transaction detail and Schedule D (Form 1040) for the capital-gain summary and deductible capital losses. Ordinary income uses the applicable Form 1040 line or schedule. Wages, contractor income, and digital assets sold to customers in a trade or business can follow different reporting routes, including Schedule C when appropriate.
The digital-asset question on the individual return is a separate filing question. Answering it does not by itself determine whether tax is due, and answering it does not replace reporting income, gains, or losses on the required forms.
Form 1099-DA: what changed for 2025 transactions
| Date or rule | What it means |
|---|---|
| January 1, 2025 | Broker reporting begins for covered broker-effected digital-asset transactions. |
| 2025 sales | Brokers must complete Form 1099-DA for covered sales, but the 2025 instructions do not require brokers to report basis. |
| February 17, 2026 | IRS 2026 filing-season guidance says brokers must furnish taxpayers the corresponding 2025 Form 1099-DA information by this date. |
| 2025 statements generally | Many statements show reported proceeds without the basis needed to finish the gain or loss calculation. |
A Form 1099-DA is an information return, not a completed tax calculation. Compare its proceeds, dates, units, and any listed basis with exchange exports, wallet histories, acquisition records, and your lot-identification method. Correct omissions or mismatches rather than copying a statement without review.
The IRS says: “Every taxpayer must report any related income, gains, or losses, whether they receive a Form 1099-DA or not.” No form does not mean no reporting obligation.
Records you need to keep
The Internal Revenue Code and regulations require sufficient records to establish the positions taken on federal returns. For digital assets, retain records that let you reconstruct each receipt and disposition:
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- Asset name or identifier and the number of units.
- Date and, where relevant, time of acquisition, receipt, transfer, and disposition.
- Fair market value in U.S. dollars at receipt and disposition.
- Purchase price or other basis, plus adjustments required by the applicable rules.
- Fees and transaction costs, with enough detail to determine how they affect proceeds or basis.
- Wallet addresses, exchange or broker account, and source and destination for transfers.
- Trade confirmations, invoices, payroll records, contractor statements, mining or staking records, and protocol or custody reports.
- Copies of Forms 1099-DA and reconciliations showing how reported proceeds tie to your own records.
The IRS specifically identifies the asset type, transaction date and time, number of units, fair market value in U.S. dollars, and basis as information needed to calculate gain or loss. A paper “crypto tax record book” or transaction ledger can organize those fields, but it cannot substitute for underlying exchange exports, wallet data, or confirmations.
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A transaction-by-transaction workflow
- Collect source data. Download statements from every exchange and broker, export each wallet’s transaction history, gather acquisition confirmations, payroll or contractor records, income-event statements, and all Forms 1099-DA.
- Build a complete inventory. List every receipt, transfer, exchange, payment, sale, and other disposition for the tax year. Label transfers between your own wallets separately from events that change ownership or financial interest.
- Match dispositions to lots. For each sale, exchange, or payment, identify the units disposed of, their acquisition dates, and their basis. Preserve evidence supporting the identification and holding period.
- Value each event in dollars. Record proceeds or fair market value at the transaction time, the units, timestamps, and fees. For income receipts, record the value used for income inclusion and resulting basis.
- Separate income from capital activity. Do not bury wages, contractor payments, mining, staking, rewards, or other income inside a capital-gain spreadsheet. Track the form or schedule that applies to each category.
- Reconcile broker information. Compare Form 1099-DA proceeds and dates with your records. Investigate missing basis, duplicate transactions, transfers misclassified as sales, and activity absent from the statement.
- Prepare the return and retain support. Complete the applicable forms for the tax year, preserve calculation workpapers and source files, and keep records long enough to support the positions on the return.
Lot identification and the FIFO misconception
When you dispose of units, the units’ basis and holding period matter. IRS digital-asset FAQs describe chronological-first ordering when units are not specifically identified and also address units held in a broker’s custody and the requirements for identification. That does not justify saying “FIFO always applies.” Lot-identification rules can depend on custody, records, and timing.
If you intend to use specific identification, retain records that connect the disposed units to the acquisition lot, including the asset, quantity, date and time, wallet or account, and confirmation that the custodian or broker received the identification instructions where required. If you cannot support the identification, use the ordering method required by the current IRS guidance for those facts.
Common failure points and fixes
“I did not get a 1099, so I do not report it.”
That conclusion is wrong. Report taxable income, gain, or loss for the year it occurred. Use your own records when an information return is missing.
“Only cashing out to dollars is taxable.”
Exchanges into another digital asset and spending crypto can also be dispositions. Include them in the transaction inventory.
“A wallet transfer is always a sale.”
A movement between wallets you own does not automatically change ownership or create a disposition. Document ownership, source, destination, and any fees, then analyze the actual facts.
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“The 1099-DA gives me my final gain.”
For 2025 transactions, basis often is not reported. Reconstruct basis and lot selection from acquisition and wallet records, then reconcile proceeds to the form.
“Every staking or airdrop event has the same rule.”
Timing, control, custody, and the nature of the event matter. Preserve records and apply the IRS guidance that fits the transaction rather than a blanket label.
“A spreadsheet alone proves everything.”
A spreadsheet is an index and calculation tool, not independent evidence. Keep original exports, confirmations, invoices, and statements in a secure, readable format.
Choosing a recordkeeping approach
| Approach | What to verify |
|---|---|
| Paper ledger or spreadsheet | Can it capture every wallet and exchange, exact timestamps, U.S.-dollar values, fees, basis, lot selection, and links to original documents? Frequent trading requires disciplined imports and reconciliation. |
| Tax software or digital-asset tracker | Confirm support for the tax year, all exchanges and wallets, the transaction types you used, basis and lot-identification rules, Form 1099-DA reconciliation, exports, and retention of source documents. |
| Qualified tax professional | Ask about experience with your transaction types, custody arrangements, business activity, tax-year coverage, documentation standards, and how the professional will review imported data. |
The IRS specifies records and reporting obligations, not a particular consumer product. Whichever method you use, you should be able to reproduce every reported number from original records.
Situations outside this general guide
This is general U.S. federal information, not individualized tax advice. State and local rules may differ. Non-U.S. taxpayers, partnerships and corporations, businesses, gifts, charitable transfers, estates, lending, derivatives, DeFi protocols, wrapped assets, bridges, lost or stolen keys, and unusual custody arrangements can require separate analysis. Use the current IRS forms and instructions for the filing year because reporting documents and rules can change.
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