Crypto Tax Forms
If you trade or exchange crypto, you may owe tax. Crypto transactions are taxable and you must report your activity on crypto tax forms to figure your tax bill.
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Key Takeaways • The IRS treats cryptocurrency as “property.” If you buy, sell or exchange cryptocurrency, you’re likely on the hook for paying crypto taxes. • Reporting your crypto activity requires using Form 1040 Schedule D as your crypto tax form to reconcile your capital gains and losses and Form 8949 if necessary. • You report your total capital gains or losses on your Form 1040, line 7. • You may also use other tax forms for crypto taxes like Form 1099-NEC or 1099-MISC if you earned ordinary income related to cryptocurrency activities. • Cryptocurrency transactions are not taxable when investing through tax-deferred or non-taxable accounts such as IRAs and Roth IRAs. |
Do I have to pay crypto taxes?
Yes, if you traded in a taxable account or you earned income for activities such as staking or mining. According to IRS Notice 2014-21, the IRS considers cryptocurrencies as “property,” and are given the same treatment as stocks, bonds or gold. If you sold crypto you likely need to file crypto taxes, also known as capital gains or losses. You’ll report these on Schedule D and Form 8949 if necessary. Separately, if you made money as a freelancer, independent contractor or gig worker and were paid with cryptocurrency or for crypto-related activities, then you might be self-employed and need to file Schedule C.
If you only bought but didn’t sell crypto during the year, electing to hold it in a wallet or on a crypto platform, you won’t owe any taxes on the purchase. Much like you wouldn’t owe taxes for buying and holding stocks for your portfolio.
The tax consequence comes from disposing of it, either through trading it on an exchange or spending it as currency. That’s right, when you make purchases using crypto, this counts as a taxable event you’ll need to report on your tax forms just like selling a stock and using the resulting money to buy something.
You’ll need to keep track of all these transactions so you can determine your tax liability accurately on your tax return.
If you bought, sold or exchanged cryptocurrency as an investment through a tax-deferred or non-taxable account, this activity isn’t taxable. Although, depending upon the type of account, you might be taxed when you withdraw money from the account.
What forms should I receive from my crypto platform?
To document your crypto sales transactions you need to know when you bought it, how much it cost you, when you sold it and for how much you sold it. This information is usually provided to you by your trading platform on a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. However, not all platforms provide these forms. Typically, they can still provide the information even if it is not on a 1099-B.
If you were mining crypto or received crypto awards then you should receive either Form 1099-MISC, Miscellaneous Income, or 1099-NEC, Nonemployee Compensation. These forms are used to report how much you were paid for different types of work-type activities.
When these forms are issued to you, they are also sent to the IRS so that they can match the information on the forms to what you report on your tax return.
TurboTax Tip: Cryptocurrency exchanges won't be required to send 1099-B forms until tax year 2023. If you don’t receive a Form 1099-B from your crypto exchange, you must still report all crypto sales or exchanges on your taxes.
Use crypto tax forms to report your crypto transactions and income
When accounting for your crypto taxes, make sure you include the appropriate tax forms with your tax return. Further, even if you don’t receive 1099s from crypto exchanges, brokers, or other companies who paid you for crypto activities, you should always report all of your reportable crypto transactions and income on your tax return.
The IRS has stepped up crypto tax enforcement, so you should make sure you accurately calculate and report all taxable crypto activities.
Which tax forms do you need to file crypto taxes?
Reporting crypto activity can require a handful of crypto tax forms depending on the type of transaction and the type of account. You might need any of these crypto tax forms, including Form 1040, Schedule D, Form 8949, Schedule C, or Schedule SE to report your crypto activity.
Form 1040
Form 1040 is the main form used to file your income taxes with the IRS. The form has areas to report income, deductions and credits and it is used to gather information from many of the other forms and schedules in your tax return. You use the form to calculate how much tax you owe or the refund you can expect to receive.
Starting in tax year 2020, the IRS stepped up enforcement of cryptocurrency tax reporting by including a question at the top of your 1040. The Form 1040 now asks, “At any time during 2023, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”
The IRS added this question to remove any doubt about whether cryptocurrency activity is taxable. You will use other crypto tax forms to report cryptocurrency activity, but you must indicate if you participated in certain cryptocurrency activity during the tax year on Form 1040.
Schedule D
Most people use Form 1040, Schedule D to report capital gains and losses from the sale or trade of certain property during the tax year. Capital assets can include things like stocks, bonds, mutual funds, homes, and cryptocurrencies.
When you sell property held for personal use, such as a car, for a gain, you generally need to report it on Schedule D. But when you sell personal use property for a loss, you generally do not need to report it as it is typically not tax-deductible. Even though it might seem as though you use cryptocurrency for your personal use, it is considered a capital asset by the IRS.
When reporting gains on the sale of most capital assets the income will be treated as ordinary income or capital gains, depending on your holding period for the asset. In the event you have a loss on the sale of a capital asset, you can typically use this to offset other capital gains or offset up to $3,000 of other taxable income on your tax return. Losses in excess of this $3,000 limit can roll forward to future years, offsetting future capital gains or up to $3,000 of ordinary taxable income per year.
Form 8949
You file Form 8949 with your Schedule D when you need to report additional information for the sale or exchange of capital assets like stocks, bonds, real estate and cryptocurrencies. You can file as many Forms 8949 as needed to report all of the necessary transactions. You might need to report additional information such as adjustments to the cost of an asset or expenses that you incurred to sell it. You also use Form 8949 to report the sale of assets that were not reported to the IRS on form 1099-B by your crypto platform or brokerage company or if the information that was reported needs to be corrected.
Once you list all of these transactions separately on Form 8949, you can enter their total value on your Schedule D.
Schedule C and Schedule SE
If you earned income, either in cryptocurrency or any other form of payment, by working for a company where you aren’t an employee, then you are likely self-employed. You can use Schedule C, Profit and Loss From Business, to report your income and expenses and determine your net profit or loss from the activity. If your net profit is $400 or more then you will likely need to complete Schedule SE, Self-Employment Tax, to calculate your Social Security and Medicare taxes that you owe from your crypto work.
If you received other income such as rewards and you are not considered self-employed then you can report this income on Schedule 1, Additional Income and Adjustments to Income.
TurboTax Tip: Not all earnings from cryptocurrencies are considered capital gains. You can also earn ordinary income related to cryptocurrency activities which you need to report on your tax return as well.
Other tax forms you may need to file crypto taxes
The following 1099 forms that you might receive can be useful for reporting your crypto earnings to the IRS.
Form 1099-MISC
Form 1099-MISC is used to report certain payments you receive from a business other than nonemployee compensation. You may receive one or more 1099-MISC forms reporting payments made to you during the year.
Form 1099-MISC is often used to report income you’ve earned from participating in crypto activities like staking, earning rewards or even as a promotional incentive from a broker or crypto exchange.
Even if you do not receive a 1099-MISC from the entity which provided you a payment, you still need to report this income on your tax return.
Form 1099-NEC
As a way to earn cryptocurrency, some currencies require you to mine it by verifying transactions occurring on the cryptocurrency’s blockchain. If you successfully mine cryptocurrency, you will likely receive an amount of this cryptocurrency as payment.
You can expect to receive Form 1099-NEC when a business pays you $600 or more per year when you work for them as a non-employee. Even if you don’t receive a 1099-NEC form, these earnings are still taxable and need to be reported on your tax return regardless if you are paid in cryptocurrency rather than another currency.
How to calculate cryptocurrency gains and losses
Capital gains and losses fall into two classes: long-term and short-term. There's a very big difference between the two in terms of what you can expect from a tax perspective.
- Short-term capital gains and losses come from the sale of property that you held for one year or less. These gains are typically taxed as ordinary income at a rate as high as 37% in 2023.
- Long-term capital gains and losses come from the sale of property that you held for more than one year and are typically taxed at preferential long-term capital gains rates of 0%, 15%, or 20% for 2023.
You start determining your gain or loss by calculating your cost basis, which is generally the price you paid and adjust (reduce) it by any fees or commissions to conduct the transaction.
Next, you determine the sale amount and adjust (reduce) it by any fees or commissions paid to close the transaction.
From here, you subtract your adjusted cost basis from the adjusted sale amount to determine the difference, resulting in a capital gain if the amount exceeds your adjusted cost basis, or a capital loss if the amount is less than your adjusted cost basis.
You can use this Crypto Tax Calculator to get an idea of how much tax you might owe from your capital gains or losses from crypto activities.
How do I report my cryptocurrency trading on my taxes?
As this asset class has grown in acceptance, many platforms and exchanges have made it easier to report your cryptocurrency transactions.
You might receive Form 1099-B from your trading platform for capital asset transactions including those from crypto. Regardless of whether or not you received a 1099-B form, you generally need to enter the information from the sale or exchange of all assets on Schedule D. You can use Form 8949 if you need to provide additional information for, or make adjustments to, the transactions that were reported on your 1099-B forms. You will also need to use Form 8949 to report capital transactions that were not reported to you on 1099-B forms. If more convenient, you can report all of your transactions on Form 8949 even if they do not need to be adjusted. Sometimes it is easier to put everything on the Form 8949.
If you are using Form 8949, you first separate your transactions by the holding period for each asset you sold and then into relevant subcategories relating to basis reporting or if the transactions were not reported on Form 1099-B. Assets you held for a year or less typically fall under short-term capital gains or losses and those you held for longer than a year are counted as long-term capital gains and losses.
After entering the necessary transactions on Form 8949, you then transfer the information to Schedule D. Schedule D is used to report and reconcile the different types of gains and losses and determine the amount of your taxable gains, deductible losses, and amount to be carried over to the next year. The information from Schedule D is then transferred to Form 1040.
How do I report my cryptocurrency earnings and rewards on my taxes?
After calculating all of your capital gains or losses on Schedule D, you need to report any cryptocurrency income from non-trade or exchange related activities that you’ve received during the course of the tax year. This can be from services you’ve performed as an independent contractor, rewards received from a crypto exchange or brokerage, income earned through mining cryptocurrency, and more.
If you were working in the crypto industry as a self-employed person then you would typically report your income and expenses on Schedule C. This form has areas for reporting your income received, various types of qualified business expenses that you can deduct, and adding everything up to find your net income or loss from your work.
You will need to add up all of your self-employment compensation from your crypto work and enter that as income on Schedule C, Part I. This section has you list all the income of your business and calculate your gross income.
Part II is used to report all of your business expenses and subtract them from your gross income to determine your net profit or loss. If you have expenses that don’t seem to fit into one of the categories provided on the form, you can create your own category and list it with the amount in Part V, Other Expenses.
Several of the fields found on Schedule C may not apply to your work. You do not need to complete every field on the form.
In the event your self-employment income totals $400 or more, you will also need to determine your self-employment taxes. As a self-employed person, you must pay both the employer and employee portions of these taxes used to pay for Social Security and Medicare.
When you work for an employer, your half of these taxes are typically taken directly out of your paycheck. Your employer pays the other half for you, reducing what you would have to pay if you worked for yourself.
When calculating self-employment taxes, you’ll use Schedule SE to determine what you’ll pay. Self-employment taxes are typically 15.3% of your self-employment net income. This includes 2.9% for Medicare tax and 12.4% for Social Security tax. As an employee, you pay half of these, or 1.45% and 6.2%, respectively. The amount of earnings subject to Medicare tax is unlimited, while the Social Security tax is only against your first $160,200 of total earnings in 2023. So, in the event you are self-employed but also work as a W-2 employee, the total amount of self-employment income you earn may not be subject to the full amount of self-employment tax. Some of this tax might be covered by your employer, reducing the amount of your self-employment income subject to Social Security tax on Schedule SE. The amount of reduction will depend on how much you earn from your employer.
The self-employment tax you calculate on Schedule SE is added to the tax calculated on your tax return. You transfer the amount from Schedule SE to Schedule 2 and then to Form 1040. Additionally, half of your self-employment tax is deductible as an adjustment that reduces your taxable income. You transfer this amount from Schedule SE to Schedule 1.
Use crypto tax forms to report your crypto transactions
When accounting for your crypto taxes, make sure you file your taxes with the appropriate forms. When you dispose of your crypto by trading, exchanging, or spending it, you’ll need to report these transactions on Form 1040, Schedule D. You may also need to report this activity on Form 8949 in the event information reported on Forms 1099-B needs to be reconciled with the amounts reported on your Schedule D.
If you earned income as a freelancer or through other crypto-related activity, you may receive Forms 1099-MISC or 1099-NEC. Even if you don’t receive 1099s from crypto exchanges, brokers or other companies who paid you for crypto activities, you will need to report this income on your tax return.
The IRS has stepped up enforcement of crypto tax enforcement, so you should make sure you accurately calculate and report all taxable crypto activities.
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