Confused about how to report your crypto on your taxes? You’re not alone. The tax authorities are increasingly recognizing the growing importance of cryptocurrencies. As a crypto investor, crypto taxation can be a complex process, especially with the ever-evolving landscape of digital assets.
But don’t worry! In this guide, we’ll break down the essential forms you need to complete: Crypto Tax Form 8949 and Schedule D. We’ll walk you through each step, from calculating your cost basis to reporting your capital gains and losses.
Whether you’re trading Bitcoin, earning interest on DeFi platforms, or selling NFTs, by the end of this post, you’ll learn how to organize your transactions, calculate gains or losses, and file your taxes confidently.
Which Crypto Tax Form Should I Fill?
The answer to the question of how to report cryptocurrency on taxes depends on which crypto tax form you fill out. There are four different forms available to file crypto taxes in the USA, based on the type of transaction.
Form | Who needs it? | What’s included? | View form |
Form 8949 | If you have capital gains or losses from crypto disposal | You need to report every crypto disposal individually | |
Schedule D | If you have capital gains or losses from crypto disposal | You need to report net gains and losses | |
Schedule C | If you are a self-employed investor who earns from cryptocurrency | You need to report gross income and any profit that you enjoyed from crypto | |
Schedule 1 (Form 1040) | If you are someone with additional income from cryptocurrency | You need to report your crypto income in line 8 of part 1. |
Now let’s understand the details of all these forms on a one-by-one basis.
Crypto Tax Form 8949
IRS Form 8949 is a document specifically designed to help you report your capital gains and losses from the sale, exchange, or disposal of capital assets, including cryptocurrencies. As a supplemental form to Schedule D of the 1040 tax return, it ensures you accurately track and report any taxable crypto activity.
If you’ve sold, swapped, or spent cryptocurrency, you need to include details of each transaction on Form 8949. This form is essential for complying with federal tax laws in the United States.
How's It Different From Other 1099s?
When filling out Form 8949 for crypto transactions, you’ll need to provide detailed information about each disposal. This includes:
Description of Property - (Column a)
You need to describe the type and quantity of the cryptocurrency involved in the transaction. For example, if you disposed of Bitcoin, you would include details such as “1 ETH.” This ensures clarity regarding the specific asset being reported.
Date Acquired - (Column b)
Here you provide the exact date you acquired the cryptocurrency in Mon., Day., Year format. For instance, if you purchased Bitcoin on April 12, 2024, you must include this date in your report. This information helps determine whether the disposal is classified as short-term or long-term.
Date Sold or Disposed Of - (Column c)
It is the date on which you sold, swapped, or spent the cryptocurrency. For example, if you sold the asset on August 26, 2024, include this date to complete the timeline of the transaction.
Proceeds (Sale Price) - (Column d)
You must report the fair market value of the cryptocurrency at the time of disposal. For instance, if you sold Ethereum for $3,000, this figure should be included as the sale price. This value is crucial for calculating your capital gain or loss.
Cost Or Other Basis - (Column e)
The cost basis refers to the purchase price of the cryptocurrency, including any associated fees. For example, if you bought Ethereum for $2,000 and paid $10 in transaction fees, your total cost basis would be $2,010. This number is vital for determining your profit or loss.
Capital Gain or Loss - (Column h)
The difference between the sale price and the cost basis represents your capital gain or loss. For example, if the sale price was $3,000 and your cost basis was $2,010, your capital gain would be $990. Reporting this accurately is critical to ensure proper taxation.
Parts of the Form
Form 8949 has two main sections for reporting your crypto disposals based on the holding period:
Part I: Short-Term Disposals
If you held the asset for one year or less, report it here. These transactions are taxed at your regular income tax rate. Select box A, B, or C based on whether the basis was reported to the IRS and the type of recordkeeping.
Part II: Long-Term Disposals
Assets held for more than a year before disposal belong in this section. Long-term gains often benefit from lower tax rates. Check boxes D, E, or F depending on reporting details.
For both parts, you’ll calculate the total proceeds, cost basis, and overall gain or loss at the bottom of the form.
Who Should Fill Out This Form?
Anyone who has sold, swapped, or spent cryptocurrency during the tax year needs to fill out Form 8949. This includes crypto investors, traders, and even individuals who use crypto for purchases. It’s crucial to include all taxable transactions, even those resulting in losses. Reporting losses can offset up to $3,000 of gains, reducing your overall tax liability.
Form 8949 Example Filled Out
What Should I Do If I Have A Large Number Of Transactions On Form 8949?
If you’re an active crypto investor, you might have thousands of transactions in a single tax year. Filing these on crypto tax form 8949 can feel overwhelming, especially since some tax platforms have limits on how many transactions they can handle. The IRS, however, provides a helpful solution for investors with extensive transaction records.
You can use a consolidated summary to report your short-term and long-term gains and losses. This means you don’t have to list every transaction individually on Form 8949. Instead, you group them into two categories: short-term and long-term. However, you must attach a detailed statement that provides a complete breakdown of your transactions to back up the summary.
Using tools like KoinX can make this process easier. It helps generate both a consolidated summary and the required detailed statement. This ensures your Form 8949 stays accurate and compliant with IRS requirements while saving you valuable time.
Schedule D (Form 1040)
Schedule D (Form 1040) is the form used by taxpayers to report their net capital gain or loss from investments. It covers all types of investments, including cryptocurrency transactions, as well as gains or losses from businesses, estates, and trusts. This form helps the IRS track how much you owe on your investments or whether you are entitled to a refund based on your capital gains and losses.
What Is To Be Mentioned In The Form?
Schedule D is split into three sections: short-term capital gains and losses, long-term capital gains and losses, and a summary section.
Part 1: Short-Term Capital Gains and Losses
In Part 1, you’ll report any short-term capital gains or losses from investments held for one year or less. To fill this out, you’ll refer to the boxes you checked on Form 8949. You’ll need to report:
- Column D: Total proceeds from the sale.
- Column E: The total cost basis of your investment.
- Column H: The total gain or loss from the transaction.
Pay special attention to line 6, where you report any short-term capital losses you wish to carry over to future years if you’ve already deducted $3,000 from your gains or personal income. After completing this section, proceed to line 7 to report your net short-term capital gain or loss.
Part 2: Long-Term Capital Gains and Losses
In Part 2, you report long-term capital gains and losses from assets held for more than one year. Just like in Part 1, you will check the corresponding boxes on Form 8949 and then fill out:
- Column D: Total proceeds.
- Column E: The cost basis of the asset.
- Column H: The gain or loss.
Line 14 is where you report any long-term capital loss carryover. After completing this section, go to line 15 to report your net long-term capital gain or loss.
Part 2: Long-Term Capital Gains and Losses
The summary section (Part 3) combines the results from Parts 1 and 2. On line 16, you’ll add your net short-term capital gain or loss (from line 7) and your net long-term capital gain or loss (from line 15).
Depending on the result:
- If you have a net capital gain, you’ll continue with lines 17 through 20.
- If you have a net capital loss, skip to line 21.
The final result will be transferred to Form 1040, line 7.
Who Should Fill Form 1040 Schedule D?
Any taxpayer who has capital gains or losses from investments, including cryptocurrency transactions, should fill out Schedule D. This includes individuals who:
- Sold crypto assets during the year.
- Had gains or losses from stocks, bonds, or other investment sales.
- Have capital loss carryovers from previous years.
IRS Schedule C (Form 1040)
Schedule C is a tax form used by self-employed individuals to report their business income and expenses. If you earn income from crypto activities like mining, trading, or running a crypto-related business, Schedule C helps you calculate your net profit or loss. This form is filed alongside your regular Form 1040 when you file your annual tax return.
Previously Unreported Crypto
Part 1: Report Gross Income
In Part 1 of Schedule C, you’ll report your total income from your crypto-related business activities. This includes all earnings from crypto mining, trading, or other related operations. Make sure to include the total gross income before any expenses.
Part 2: Business Expenses
In Part 2 of Schedule C, you can deduct business expenses that are necessary for running your crypto business. For instance, if you purchased mining equipment or paid for hosting fees then these expenses can be deducted here. Make sure to keep accurate records of all your business-related expenses.
Previously Unreported Crypto
Schedule C is for anyone who earns income through self-employment. This includes individuals involved in crypto mining, trading, or any other crypto-related business activities. Even if you have a regular job, you may still be required to file Schedule C if your crypto earnings are substantial enough to be considered self-employment income.
IRS Schedule 1 (Form 1040)
Schedule 1 (Form 1040) is a tax form used to report additional income and adjustments to income that are not listed on the standard Form 1040. It was redesigned by the IRS in 2018 to simplify the tax filing process. Previously, these additional income types and deductions were included directly on Form 1040. With the new version, taxpayers need to file Schedule 1 to report any income or adjustments that do not fall under the main categories on Form 1040.
What Is To Be Mentioned In The Form?
Schedule 1 is divided into two main sections: Additional Income and Adjustments to Income.
Part I – Additional Income
In this section, you’ll report income such as taxable state and local tax refunds, alimony (for divorce agreements before December 31, 2018), business income, or gains/losses from selling business property. You will also report rental income, income from partnerships, or income from a trust. If you earned cryptocurrency from airdrops, forks, or hobby-related activities, you’ll report it here as “other income” under line 8.
Part II – Adjustments to Income
This section is for reporting deductions that reduce your taxable income. Common adjustments include contributions to health savings accounts (HSAs), self-employment tax deductions, and student loan interest deductions. These deductions reduce your adjusted gross income (AGI), which can help you qualify for other tax credits, like the American Opportunity Tax Credit.
Who Should Fill This Form?
Not every taxpayer needs to fill out Schedule 1. It’s only necessary if you have any of the additional types of income or adjustments mentioned above. If your income includes any items not listed directly on Form 1040 or if you have adjustments like health savings account contributions, you’ll need to file Schedule 1 with your tax return.
Reporting Crypto On Individual Return Using Form 1040
Form 1040 is a crucial document when filing your taxes as a crypto investor. This is the Individual Income Tax Return Form, where you report all of your income, including income from crypto transactions.
To report crypto activity, you’ll need to complete various schedules, such as Schedule D and Schedule 1. For example, on line 7 of Form 1040, report any net capital gains or losses from your crypto sales, which you’ll get from Schedule D.
Next, on line 8, report any additional income from crypto-related activities, which you’ll include from Schedule 1. Additionally, you’ll be asked if you engaged in crypto transactions during the tax year. Make sure to check the box if, at any point in 2023, you sold, exchanged, gifted, or disposed of any digital assets.
Once you’ve filled out these sections, continue completing the rest of Form 1040 based on your unique tax situation. Don’t forget to submit the form and any required attachments to the IRS by the April 15 deadline.
How Can You Calculate Crypto Taxes In the USA?
Now that you know how to report cryptocurrency on taxes let’s understand how you can calculate crypto taxes. In the USA, crypto transactions are liable to Federal income tax and capital gains tax, so let’s see how each can be calculated:
Calculate Federal Income Tax
To calculate your crypto income, you’ll need to add up all taxable income you earned during the year. This includes:
- Earnings from your job are reported on Form W-2.
- Any income from self-employment.
- Income from 1099 forms, including investment dividends, taxable interest, and broker transactions.
- Capital gains, which also apply to cryptocurrency.
- Business income and farm income.
- Taxable refunds and credits.
- Rental property income or security deposits.
- Prizes, lottery, gambling winnings, and other awards.
Not all income is taxable. For instance, child support, life insurance proceeds, workers’ compensation, and disability payments are generally not taxed. Additionally, money received as a gift or inherited assets, as well as scholarships or fellowship grants are not taxable. After calculating your total taxable income, subtract any deductions to determine your adjusted gross income (AGI). You will pay taxes on this amount according to the relevant tax brackets.
Calculate Crypto Capital Gains and Losses
Capital gains and losses are determined by the difference in price between the time you acquire your cryptocurrency and when you dispose of it. The initial price you paid, plus any related fees, is your cost basis.
To calculate your gain or loss, subtract the cost basis from the sale price. If the sale price exceeds your cost basis, you have a gain. If it’s less, you have a loss.
For multiple crypto assets, like Bitcoin or Ethereum, it’s important to identify each asset’s cost basis individually. If you cannot do this, there are several accounting methods available, such as FIFO (First In, First Out), LIFO (Last In, First Out), and HIFO (Highest In, First Out), which can be used to determine your gains or losses.
How To Report Cryptocurrency On Taxes With KoinX?
KoinX is a user-friendly crypto tax software designed to simplify the process of reporting your cryptocurrency transactions. It helps investors track and calculate their crypto tax liabilities by importing transaction data from various wallets, exchanges, and blockchains. The platform is known for its accuracy and ease of use, making it a reliable tool for crypto investors in the USA.
How to Report Crypto with KoinX?
To report your cryptocurrency taxes with KoinX, start by importing your transaction history. You can do this by linking your wallets or exchanges via API or uploading CSV files. KoinX automatically processes the data to calculate your capital gains, losses, income, and any expenses related to your crypto investments. This saves you time and reduces the risk of human error.
Once KoinX processes your data, you can access your tax report through the platform’s dashboard. The report provides a clear summary of your crypto tax obligations. Additionally, KoinX allows you to download various tax reports tailored to the tax laws in your location. This ensures that the reports are accurate and meet the requirements set by the IRS and other relevant authorities in the USA.
Reporting crypto taxes doesn’t have to be complicated. KoinX makes it easy to calculate capital gains, losses, and more. Save time and reduce stress by automating your tax calculations. Join KoinX now and get your crypto taxes sorted efficiently!
Conclusion
Knowing how to report crypto on taxes is a vital step toward staying compliant with tax regulations. By understanding the details of Form 8949 and Schedule D, you can accurately report your crypto transactions and avoid unnecessary issues with the IRS.
Hence, reporting crypto taxes doesn’t have to be complicated. KoinX makes it easy to calculate capital gains, losses, and more. Save time and reduce stress by automating your tax calculations. Get started now and experience how easy tax reporting can be with KoinX!
Frequently Asked Questions
Do You Have to Report Crypto Under $600?
Yes, you must report all crypto-related transactions, including capital gains, losses, and income, regardless of the amount. The misconception about $600 stems from the requirement for exchanges to issue 1099-MISC forms for crypto income exceeding $600 in a year. However, this does not exempt transactions below $600 from being reported. Always ensure accurate reporting to the IRS to comply with tax laws.
What Happens If You Don’t Report Cryptocurrency on Taxes?
Failing to report cryptocurrency transactions can lead to severe consequences. The IRS has increased scrutiny on crypto, emphasizing compliance for 2023. Non-disclosure can result in charges of tax evasion or fraud, both federal offenses. Penalties include fines up to $100,000 and imprisonment for up to 5 years. To avoid these repercussions, ensure all crypto activities are reported accurately and on time.
Do You Pay Tax When Spending Crypto?
Yes, spending crypto on goods or services triggers a taxable event. For example, if you use Bitcoin to pay for renovations, you may owe capital gains tax based on the difference between the purchase price of the crypto and its value at the time of spending. Treat all such transactions as disposals for tax purposes to ensure compliance with IRS regulations.
When Do You Have to Pay Taxes on Crypto?
Crypto taxes for the 2024 tax year are due by April 15, 2025. The U.S. tax year runs from January 1 to December 31. U.S. expats have until June 15, 2025, to file, while those requesting an extension using Form 4868 or Free File receive an automatic deadline extension to October 15, 2025. Ensure timely reporting and payment to avoid penalties.
