Digital assets are treated as property for federal tax purposes and property tax principles generally apply. While you don’t need to report the purchases of your crypto assets to the IRS, you do need to report your disposals when you file your taxes.
Cryptocurrency is considered a "capital asset", which subjects it to capital gains tax. While purchases of digital assets are generally not reportable to the IRS, disposals are. A disposal takes place any time a digital asset is exchanged for fiat, like USD, another digital asset, for example selling BTC for ETH, or used to buy goods or services.
In each instance a disposal takes place. To determine the tax impact of a disposal the fair market value at time of the transaction must be determined as well as the original cost basis in the asset.
What other events should I record and potentially report?
As a general rule of thumb, you should maintain a record of all crypto activity you engage in. Including when you acquire crypto, exchange crypto for crypto, transfer your crypto from one wallet to another, and dispose of your crypto. This will help support your tax filings.
Crypto "Income"
In addition to crypto disposals, another potentially reportable activity you'll also want to ensure that you maintain a record of is, anytime you earn/receive crypto in exchange for any kind of service. This is typically going to be considered income and may be reportable.
- If you're eligible, you may receive record of your crypto income via a 1099-MISC or 1099-K form
- See "What Tax Form(s) Might I Be Receive?" for more details
Disclaimer: This article is intended to provide basic, helpful information surrounding crypto taxes, and does not serve as formal legal or tax advice. zerohash and its affiliates do not provide legal, financial, or tax advice. Please consult a professional financial advisor if you have additional questions surrounding how to properly record and report your crypto activity. zerohash’s Tax as a Service Product is only available to end users if the platform through which the end user is using the zerohash crypto services enables the tax services.