Why this matters

The IRS treats cryptocurrency as property, not currency, so general tax rules for capital assets apply (IRS Notice 2014-21). That means each taxable event — selling, trading, spending, receiving as income, mining, staking rewards, and many airdrops — can create ordinary income or capital gain/loss that must be reported (IRS virtual-currency guidance: https://www.irs.gov/businesses/small-businesses-self-employed/reporting-virtual-currency-transactions).

Quick checklist (what to do first)

  • Identify every crypto event in the tax year: sales, exchanges, payments received, mining/staking receipts, forks, and airdrops.
  • Determine the fair market value (USD) at the time of each event and the cost basis of disposed assets.
  • Classify events as ordinary income (e.g., payment for services, mining, staking when received) or capital transactions (sale or exchange of property).
  • Report on the correct forms and keep backup records: exchange histories, wallet exports, and receipts.

Key forms and where to report

  • Form 8949, Sales and Other Dispositions of Capital Assets: Report individual crypto sales or exchanges here, showing date acquired, date sold, proceeds, cost basis, and gain/loss. Totals flow to Schedule D (capital gains/losses). See our deep-dive on Form 8949 for crypto (link: Form 8949 — Sales and Other Dispositions of Capital Assets).
  • Schedule D (Form 1040): Summarizes capital gains and losses from Form 8949.
  • Form 1040 (virtual currency question and income lines): Report ordinary income from receiving crypto (compensation, self-employment, mining, staking) on the appropriate lines—wages on W-2 lines, self-employment income on Schedule C, or other income where applicable.
  • Information returns: Brokers or exchanges may issue Forms 1099-B, 1099-K, 1099-MISC/NEC, or other statements. Do not assume a missing 1099 means the transaction is non‑taxable.

Reporting thresholds and what triggers a report

  • There is no de minimis exemption for capital gains: any sale, trade, or disposition that produces a gain or loss is reportable.
  • Receiving crypto as payment or rewards is reportable as ordinary income at fair market value when you controlled or received the asset.
  • Information return thresholds (1099 types) and broker reporting rules have changed in recent years; exchanges may now provide cost-basis reporting to taxpayers. Always verify the specific year’s thresholds and forms with IRS guidance or your tax advisor (IRS virtual-currency guidance: https://www.irs.gov/businesses/small-businesses-self-employed/reporting-virtual-currency-transactions).

Common pitfalls and how to avoid them

  • Poor recordkeeping: Small transactions add up. Export transaction history from wallets/exchanges and keep timestamps and USD values.
  • Incorrect basis: Many taxpayers use the wrong cost basis (e.g., using current value instead of original purchase price). Use acquisition cost plus fees.
  • Mixing ordinary income and capital events: For example, a business that accepts crypto must report the USD value as ordinary income when received, then track later sales as capital transactions.
  • Ignoring forks/airdrops/staking: These often create taxable ordinary income when received or when you have constructive receipt/control.
  • Relying only on exchange reports: Some decentralized transactions or wallet-to-wallet moves won’t appear on exchange 1099s; you still must report them.

Recordkeeping and software

Good recordkeeping is the simplest tax control for crypto. Use exportable CSVs from exchanges and wallet transaction logs. Consider reputable crypto tax software that imports wallets and exchanges to compute gains, apply cost-basis methods (FIFO, specific identification if supported), and produce Form 8949-ready reports. In my work editing crypto tax resources, I see taxpayers who resolve most reporting errors by combining exchange reports with wallet exports and a reconciliation step.

When to amend a return or expect IRS notices

If you discover omitted crypto income or sales, file Form 1040-X to correct prior-year returns. If the IRS receives third-party information (1099s, broker reports) that don’t match your return, you may get a notice; respond promptly and provide your reconciled transaction records (see our guide on amending returns for unreported crypto sales: When to Amend a Return for Unreported Cryptocurrency Sales).

Practical tips

  • Start with the Form 8949 workflow: list each disposition, calculate gain/loss, and roll totals to Schedule D.
  • Keep a separate folder for receipts that support value at receipt (invoices, exchange snapshots) for income events.
  • If you accept crypto for goods or services, treat the USD value at receipt as gross income.
  • Consult a CPA experienced with digital assets for complex issues (staking, DeFi yield, cost-basis identification, wash-sale questions — wash-sale rules currently apply to securities; application to crypto remains a debated area among practitioners).

Authoritative sources

Educational disclaimer

This article is educational and does not constitute tax advice. For guidance tailored to your situation, consult a qualified tax professional or CPA.

Internal resources