Crypto taxes at a glance
- Selling, swapping, or spending crypto
- Taxable events
- Buying and holding
- Not taxable
- Staking and mining rewards
- Ordinary income when received
- Withheld by exchanges
- Nothing
More transactions are taxable than people expect
The IRS treats crypto as property, so every disposal is a taxable event measured against what you paid. Selling for dollars is the obvious one. The ones that surprise people are swapping one coin for another and spending crypto on goods or services, both taxed exactly like a sale at that moment's market value. A year of active trading can create hundreds of small gains and losses without a single withdrawal to your bank account.
Buying with dollars and holding is not taxable, no matter how much the position grows. Income earned in crypto follows a different rule. Staking rewards, mining income, and payments received in crypto are ordinary income at their value on the day received, and mining or payment for work can owe self-employment tax on top.
How the gains are taxed
The same capital gains rules as stock apply. Coins held more than one year get the 0/15/20% long-term rates, and coins held one year or less are taxed at your ordinary bracket, which is where most active traders land. Losses offset gains, and up to $3,000 of a net loss offsets other income each year. The mechanics are covered in estimated taxes on capital gains. Exchanges have also begun reporting sale proceeds to the IRS on Form 1099-DA, so unreported trades are increasingly visible.
The quarterly rules do not know it was crypto
Nothing is withheld from any of this, so a profitable year meets the same test as any other income. Expect to owe $1,000 or more at filing and the IRS wants four payments during the year, with the underpayment penalty accruing on installments that come up short.
The safe harbor rule is built for exactly this kind of unpredictable income. Pay 100% or 110% of last year's total tax through the year and no penalty applies regardless of what the market does. After one unusually large year, the windfall guide covers the follow-up mistake to avoid, and gains concentrated late in the year can use the annualized income method.
Turn a good crypto year into a payment plan
Enter your gains and other income and get the quarterly payment that keeps the IRS satisfied, free.
Sources: IRS Digital Assets · IRS Publication 505