Cryptocurrency and Taxes: A Reporting Reminder

By Britt PeltolaPublished On: March 20, 2025Categories: Businesses, Individuals, Tax News, Tax Tips, Services - Tax

As cryptocurrency continues to grow in popularity, the IRS has made it clear that digital assets like Bitcoin, Ethereum, and NFTs are not beyond the reach of taxation. For investors, understanding how cryptocurrency transactions are taxed is essential to avoiding penalties and maximizing returns. Read on for tips on how to properly manage the taxes related to cryptocurrency.

Understanding Crypto Taxes

Navigating the tax implications of cryptocurrency investments can feel complex, but the basics are straightforward: cryptocurrency may be subject to capital gains tax when exchanged or sold at a profit. Additionally, converting crypto to U.S. dollars or using it for purchases could also trigger taxable events. The tax rate you’ll face depends on how long you’ve held the asset and your filing status.

Failing to report your crypto activities can have serious consequences. At a minimum, you could face an IRS audit, which may lead to penalties or even criminal charges. So, how can you ensure your crypto transactions are properly accounted for?

Reporting Requirements

The level of reporting detail with your crypto activity can vary based on the platform you are using. Certain digital currency exchanges have very limited reporting and may not offer you the insight needed to track your gains and losses properly. Since 2020, the IRS has required taxpayers to report any cryptocurrency transactions on their tax returns. This includes a question at the top of Form 1040 asking whether you received, sold, exchanged, or otherwise disposed of any virtual currency during the year.

You Must Report:

Crypto-to-crypto trades
Staking and mining rewards
Receiving cryptocurrency as compensation
Gifts of cryptocurrency (if above the gift tax exclusion limit)

Given the complexity of crypto transactions, using a tracking tool like CoinTracker, Koinly, or CryptoTaxCalculator can help simplify recordkeeping and ensure accurate reporting.

How Can SDK Help?

Cryptocurrency is a hot topic right now and only getting hotter. The IRS has flagged it as a serious focus and it should be treated as such by investors. The team at SDK offers innovative and effective tax strategies and works to keep you abreast of tax law changes that impact your bottom line. If you have questions related to your crypto investments and tax liability, we are here to help. Reach out to us today at 612-332-5500 or email us at info@sdkcpa.com.

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Cryptocurrency and Taxes: A Reporting Reminder