The IRS treats cryptocurrency as property, not currency. This means every transaction may trigger a taxable event. Many crypto investors don't realize they owe taxes until it's too late. Here's what you need to know.

Taxable Events

You owe taxes when you:

• Sell crypto for fiat currency (USD, EUR, etc.)
• Trade one cryptocurrency for another
• Use crypto to purchase goods or services
• Receive crypto as payment for services
• Receive crypto as a gift (in some cases)
• Earn mining or staking rewards

Types of Income

Reporting Requirements

Track all transactions with:

• Date acquired and date sold
• Amount of crypto in units
• Cost basis (what you paid)
• Proceeds (what you sold for)
• Fair market value in USD at time of transaction

Report on Form 8949 (Sales of Capital Assets) and Schedule D (Capital Gains and Losses). The IRS uses this information to verify your tax return.

Record Keeping Best Practices

• Export transaction history from all exchanges (Coinbase, Kraken, etc.)
• Keep records for at least 7 years
• Use crypto tax software to simplify calculations
• Track the cost basis for each transaction
• Document which cost basis method you use (FIFO, LIFO, or Specific ID)

Common Mistakes to Avoid