In the eyes of the IRS, cryptocurrency is not money. It is property, more like shares or a house than like dollars in a bank account. That one classification, in place for years, drives almost every US crypto tax rule — and it catches out holders who assume small trades do not count.
When tax happens
You generally trigger a taxable event whenever you dispose of crypto:
- Selling crypto for dollars or another currency
- Swapping one coin or token for another
- Spending crypto on goods or services
- Converting crypto into a stablecoin
Each disposal produces a capital gain or loss: what you received, minus what you originally paid, including fees. If you held the asset for more than one year, long-term capital gains rates usually apply, which are generally lower than short-term rates. Hold it for a year or less, and the gain is typically taxed at your ordinary income rates.
When crypto itself is income
Getting paid in crypto is different. Mining rewards, staking rewards and wages or freelance income paid in digital assets count as ordinary income, valued at their fair market value in dollars on the day you receive them. If you later sell those same coins, you may owe capital gains tax on any change in value since that day — which is why the receipt value matters. None of this requires expensive software to start — a simple spreadsheet maintained honestly beats a shoebox of exchange emails reconstructed in a panic at filing time.
Reporting is getting harder to ignore
New broker reporting rules are being phased in for this period, including Form 1099-DA, which US crypto brokers use to report customer transactions to the IRS. Even where a form does not cover everything, the tax obligation still exists. Good records are your best protection: dates, amounts, fees and wallet addresses for every trade and transfer.
This guide is educational, not tax advice. Crypto taxes get complicated quickly with DeFi, airdrops and multiple wallets, so keep clean records through the year and consult a qualified tax professional before filing.
