How is Crypto Taxed: US Crypto Tax Guide

How is crypto taxed?

In the US, crypto is taxed in two main ways:

1. Capital gains tax when you dispose of crypto
2. Income tax when you earn crypto

That’s it. Almost every crypto tax question comes back to one of these two categories.

In simple terms:

• If you own crypto and get rid of it, you’re dealing with crypto capital gains tax.
• If you receive crypto as payment, rewards, or interest, it’s taxed as income.

We’ll break down exactly what counts as a disposal, and all the different ways crypto can be treated as income, step by step.

How do we know this? Everything here follows the IRS Digital Assets tax rules. Our crypto tax team, including me, founder Chris Herbst, are experts in IRS crypto taxation. I've written this US crypto tax guide to be super clear and up to date with the latest rulings from the IRS.

When do you pay crypto capital gains tax

Capital gains tax on crypto applies when you dispose of crypto you own.

A disposal simply means crypto leaves your ownership or changes hands.
In my experience working on crypto tax, this is the rule that causes the most confusion.

A crypto disposal can trigger crypto capital gains tax in 3 ways in the US:

• Selling crypto for fiat currency
• Trading one crypto for another
• Spending crypto on goods or services

If you make a profit on these transactions, the profit may be taxable. But if you make a loss, that loss can usually be used to offset taxable gains. We need to get into short and long term tax rates next. Every disposal of crypto and subsequent capital gain/loss must be reported on Form 8949 and Form Schedule D (1040)
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So if you owe capital gains tax on crypto, on what day do you actually need to pay the IRS? It depends! Skip ahead for the answer.

When do you pay income tax on crypto?

Income tax applies anytime you earn crypto. This could be in a straightforward way like having your salary paid in crypto, or in other situations more closely resembling interest earnings.

Crypto as income includes:

• Getting paid in crypto
• Mining and staking rewards
• Airdrops
• Referral bonuses
• Interest from crypto lending
• Earning new tokens through DeFi protocols
• GameFi and play-to-earn rewards

This is another area where I see confusion, especially when rewards feel 'passive' rather than earned. But to the IRS, crypto rewards are a form of income which is therefore subject to income tax.

TIP: Crypto income is reported on Form Schedule 1 (1040) or Form Schedule C (1040)

How much is crypto taxed?

This is the big question, and in practice, there’s no single answer. The internet is full of so-called crypto tax calculators, but in my experience, these are assuming that there's a fixed crypto tax rate, when in fact your crypto tax bill depends on several moving parts. Here's what the IRS tells us on how is crypto taxed: 

The amount of tax you’ll pay on crypto depends on how much you earn, the specific crypto transactions yo've made, the state you live in, and how long you've held your crypto for. When working with our clients as crypto tax accountants, we look at: 

• For short-term capital gains, you'll pay your federal and state income tax rate.
• For long-term capital gains, you'll pay the federal capital gains tax rate and your state income tax rate, unless you live in a state where there is an exemption or specific long-term CGT rate.
• For income from crypto (like mining or staking rewards), you'll pay your federal and state income tax rate.

Further down, we’ll look at legal ways to reduce your taxes on crypto. If that’s what you’re here for, feel free to skip ahead.

Short-term vs long-term crypto taxes

To get to an answer on 'how much tax will I pay' we need to consider your holding period first. Because, when you sell or trade crypto in the US, how much tax you pay depends on how long you held it.

If you dispose of crypto you held for one year or less, any profit is usually taxed as a short-term capital gain. Short-term gains are taxed at your ordinary income tax rate, which is often higher.

If you dispose of crypto you held for more than one year, the profit may qualify as a long-term capital gain. Long-term capital gains are typically taxed at lower rates, which is why holding period matters so much.

In practice, this is one of the biggest levers our US clients have to reduce their taxes on crypto. Simply, to pay less tax you need to hold.

The clock starts when you acquire the crypto and resets every time you buy, earn, or receive new tokens. Each disposal is assessed separately, even if the trades happen close together.

Federal Income tax rate

Here is the first set of rates we look at when determining our client's 'crypto tax rate'. These rates are set by the IRS each financial year and apply to short-term capital gains (for crypto held less than a year) and crypto income. This table describes the rates that apply to income and gains earned in 2025 but reported reported by April 2026.

Capital gains tax rate 2026

Now to the second set of rates. These IRS rates apply to long-term capital gains, that means for crypto held more than a year. This table describes the rates that apply to income and gains earned in 2025 but reported by April 2026.

When do you report crypto taxes?

In the US, crypto taxes are reported as part of your annual tax return. Tax season typically opens in late January, and in practice most people begin filing from February, once all tax documents are available.

For the 2026 tax year, the standard filing deadline is Thursday, 15 April 2026. This is known as Tax Day. If you are an American living abroad, the filing deadline is Tuesday, 15 June 2026.

In our experience, many clients file within the final two weeks before the April deadline. Clients with more complex situations, such as DeFi activity, NFTs, or high transaction volumes, often choose to file an extension, which moves the filing deadline to Friday, 15 October 2026. The extension request must be submitted by 15 April 2026 to be valid.

It’s important to note that an extension gives you more time to file your return, not more time to pay any tax owed.

How do you report crypto on your tax return?

When you file your US tax return, crypto is reported in a few specific places. You don’t need to memorise the form numbers, but it helps to know what goes where.

Step 1: Answer the crypto question on your tax return‍

On Form 1040, you’ll be asked whether you received, sold, exchanged, or otherwise disposed of a digital asset during the year. If you did any of these, you must answer “yes.”

Step 2: Report crypto disposals and gains or losses

‍Every time you sell, trade, or spend crypto, you report the resulting capital gain or loss. These transactions are listed on Form 8949 and summarised on Schedule D.

Step 3: Report crypto income

‍Crypto you earn, such as staking rewards, mining income, or payments in crypto, is reported as income. This is usually included on Schedule 1 or Schedule C, depending on how the income was earned.

You can file all of this using standard tax software like TurboTax or TaxAct, provided your crypto data is complete and accurate. CountDefi calculates your taxes and generates completed IRS forms for you.

Do I need all these forms?

‍Not necessarily. Most taxpayers never see these forms directly. If you use tax software or work with a tax professional, the forms are generated automatically in the background based on your answers and transaction data. The key thing to understand is not the form numbers, but what you did with crypto. Once that’s clear, the correct forms are filled in for you.

How do you get the data and calculations you need?

To complete your crypto tax forms, you need a full record of your transactions and accurate calculations for gains, losses, and income. There are a few common ways people get this data.

1. Use crypto tax software‍

Most people start with crypto tax software, which connects to exchanges and wallets to pull in transaction data automatically. The software then applies the tax rules to calculate capital gains, losses, and income, and outputs the figures needed for your tax return. This works well for straightforward activity, as long as the data is complete and consistent.

2. Export data manually and calculate it yourself

‍Some taxpayers download transaction histories directly from exchanges and wallets and calculate gains and income manually, often using spreadsheets. This approach can work for very small or simple portfolios, but it becomes time-consuming and error-prone as activity increases.

3. Combine software with manual fixes

‍A common middle ground is to use tax software for the heavy lifting, then manually review and correct issues such as missing transactions, cost basis gaps, or misclassified activity. This approach can work, but it requires a good understanding of both the crypto data and the tax rules.

4. Work with a crypto tax accountant

For complex activity, some people choose to work with a crypto tax specialist who reviews the data, resolves inconsistencies, and produces accurate, IRS-ready calculations. This is often the safest option when dealing with DeFi, NFTs, high transaction volumes, or multiple years of activity. CountDefi is a leading US tax firm with dedicated crypto tax accountants who specialise in handling complex crypto activity. Our approach starts with collecting and reconciling crypto data at a forensic level, across wallets, exchanges, and protocols. From there, we apply the correct IRS tax treatment to each transaction to produce accurate calculations and complete, IRS-ready tax forms. This approach is designed for cases where software alone cannot reliably interpret the underlying data.

Do cryptocurrency exchanges send tax forms?

Yes, some crypto exchanges do issue tax forms. Today, the most common one is Form 1099-MISC. From 2026 onwards, exchanges will also be required to issue Form 1099-DA, a new form designed specifically for digital assets.

In the past, some exchanges issued Forms 1099-B and 1099-K, but most have stopped. These forms often caused confusion and didn’t reflect how people actually use crypto.

Should I rely on exchange tax forms?

Exchange tax forms are useful, but they’re rarely complete. They usually reflect activity on a single platform and may miss transfers, wallet activity, and accurate cost basis. In practice, they’re best treated as a starting point, not something to file from on their own. To report crypto accurately, transaction data from all wallets and exchanges need to be reconciled first.

What is Form 1099-MISC?

Form 1099-MISC reports crypto income such as staking rewards, airdrops, or other rewards. Exchanges usually issue this form if you earned more than $600 in a tax year. If you earned less, the income is still taxable, even if no form is issued.

What is Form 1099-DA?

Form 1099-DA (Digital Asset Proceeds From Broker Transactions) is a new IRS information return created specifically for digital assets. This represents a fundamental shift in crypto tax reporting.

Tax Year 2025 (forms issued in early 2026):

• Brokers must report gross proceeds from digital asset sales and exchanges
• Cost basis reporting is optional (not required)
• Custodial exchanges will issue 1099-DA to users who made reportable dispositions

Tax Year 2026 (forms issued in early 2027):

• Brokers must report both gross proceeds AND cost basis for covered digital assets
• Cost basis will only be reported for "covered securities"—assets acquired and held continuously within the same broker account after January 1, 2026

What This Means for You

For 2025 transactions: You will likely receive a 1099-DA showing gross proceeds, but without cost basis. You remain responsible for calculating and reporting your own cost basis.

Critical limitation: Brokers can only report cost basis for assets they have complete custody history over. Any assets you:

• Transferred in from another exchange or wallet
• Acquired through DeFi, staking rewards, or airdrops
• Purchased before the broker began tracking

...will likely show blank or incomplete cost basis on your 1099-DA.

IRS Matching and Audit Risk

The IRS will receive the same 1099-DA forms you receive. When broker-reported proceeds don't match what you report on your tax return, automated IRS systems flag the discrepancy. This can result in CP2000 notices demanding tax on "unreported" proceeds—even when you've properly accounted for cost basis yourself.

Practical implication: Accurate record-keeping is more important than ever.

The End of Universal Tracking

Under Revenue Procedure 2024-28, the IRS eliminated the "universal" cost basis tracking method effective January 1, 2025. Previously, taxpayers could track cost basis across all wallets as if assets were held in a single pool.

Starting in 2025, you must track cost basis separately for each wallet and exchange account.

How This Affects Your Tax Calculations

Example under the old universal method:

• You bought 1 BTC for $20,000 on Exchange A
• You bought 1 BTC for $60,000 on Exchange B
• You sold 1 BTC on Exchange B for $70,000
• Using FIFO universally, your cost basis could be $20,000 (gain of $50,000)

Example under the new per-wallet method:

• Same purchases as above
• You sold 1 BTC on Exchange B for $70,000
• Your cost basis must come from Exchange B holdings: $60,000 (gain of $10,000)

This change can significantly impact your tax liability depending on which wallet holds your highest or lowest cost basis assets.

Safe Harbor Transition (Deadline Passed)

The IRS provided a one-time safe harbor under Rev. Proc. 2024-28 allowing taxpayers to reallocate unused cost basis across wallets. This allocation had to be documented by December 31, 2024.

If you missed this deadline: You must still use wallet-by-wallet tracking going forward, but you won't have safe harbor protection if the IRS challenges your historical calculations.

FIFO as Default Method

Starting in 2025, the default cost basis method is First-In-First-Out (FIFO) applied per wallet. You can still use specific identification (HIFO, LIFO, etc.), but you must:

• Document which specific lot you're selling before the transaction
• Maintain records supporting your identification

On what date do you pay crypto tax in the US?

Most people pay when they file their tax return

For individuals, crypto tax is usually paid by Tax Day:

• April 15 (or the next business day if it falls on a weekend or holiday)

This applies if:

• You’re an employee or casual investor
• Crypto income or gains weren’t large enough to require prepayments

You file your return and pay any tax owed to the IRS at the same time.

In my experience, many people assume crypto tax is paid at the moment of a trade. It isn’t. It's settled when you file, unless estimated taxes apply.

Some people must pay earlier via estimated taxes

Many of CountDefi's clients sit in this bucket. You may need to make quarterly estimated tax payments if:

• You earn significant crypto income (staking, mining, DeFi, trading)
• You’re self-employed or trading frequently
• Not enough tax is withheld elsewhere

Estimated tax deadlines are usually:

• April 15
• June 15
• September 15
• January 15 (following year)

If you don’t prepay enough, the IRS may charge underpayment penalties, even if you pay in full in April.

What if you file an extension?

If you file an extension:

• You get more time to file, usually until October
• You do not get more time to pay

Any tax owed is still due by April 15.

What if you can’t pay in full?

If you owe tax and can’t pay everything at once:

• You should still file on time
• You can set up an IRS payment plan
• Interest and penalties may apply, but this is usually better than not filing

How do I go about calculating my own crypto tax?

Should you wish to calculate your own crypto tax in the United States, you can follow the following process:

1. Identify all your taxable crypto transactions for the financial year you’re reporting on.
2. Identify which transactions are subject to Income Tax and which are subject to Capital Gains Tax.
3. Identify the cost base for each transaction using your chosen accounting method.
4. Calculate your subsequent capital gains and losses, income and expenses.

You’ll need to report all taxable crypto disposals, the proceeds from your disposal, the subsequent capital gain or loss to the IRS, and any income from crypto.

Summary

The crypto taxation framework in the US is constantly evolving. While there are ways to limit your tax burden, it is ultimately the case that once this burden is limited within a legal framework, compliance will prevent a lengthy and costly process of being compelled to pay up later due to illegal activity. We can help you with the tedious task of calculating your crypto taxes; contact us here. View our packages here.

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