Regulations are a part of every system; if you are part of a particular system or structure, you must comply with its rules and regulations. The crypto sphere is no exception; if you are into it, all your activities should follow the existing regulatory instructions that the authorities and concerned agencies put forward.
Tax is a compulsory contribution to the government, which is generally used for the welfare programs, infrastructure development, and to improve the quality of people’s lives.
Do I have to pay taxes on crypto? This will be one of the most repeated questions in the crypto sphere. Yes, some countries, including the United States and the United Kingdom, have since the agencies like the IRS classify cryptocurrency as property, not as a currency.
Since cryptocurrency is considered property, it is subject to capital gains and ordinary income taxes, depending on the transaction. This article comprehensively discusses the basics of crypto taxes that every investor should be aware of.
Crypto Taxes and Regulations: Global overview
Cryptocurrency was included in a legal grey area, and the situation started to change in 2014, when the United States and the IRS issued guidance classifying virtual currencies as property for federal tax purposes.
After that, most countries and states have started to recognize it as an asset or property. Because of this inclusion, adopting the necessary legislation and regulation methods becomes inevitable.
At the moment, the global crypto tax regulations and frameworks are becoming wider and more comprehensive. Even though the regulations follow a similar pattern, they vary significantly by jurisdiction.
Most countries and states in the world consider crypto as property, whereas some countries offer pro-crypto and favourable zero-tax conditions for crypto possession and transactions.
The global approaches to cryptocurrency differ in each country; some offer no tax provisions, and others treat them as assets like property and subject to capital gains and income taxes. When we analyze the crypto taxes globally, some of the common taxable events are
Taxable Events
- Selling crypto for fiat
- Using crypto for goods and service purchases
- Staking
- Trading crypto for crypto
- Earning crypto as income
- Cryptocurrency gifts and donations
- Participating in proof-of-stake consensus
- Cryptocurrencies received through initial coin offerings and security token offerings
Non-Taxable Events
- Purchasing cryptocurrencies using fiat or traditional currencies like USD, EUR is not a taxable event.
- Holding the cryptocurrency without initiating selling, trading, or disposing.
- Transferring crypto between your own wallets.
- Giving and receiving crypto as a gift
- Using crypto as collateral for a loan
You are subject to crypto tax if you cash out digital assets like BTC, ETH, XRP for traditional currencies like USD, EUR, or GBP.
Swapping or trading one crypto for another type of digital asset is also a taxable event. If you earn crypto as income through rewards from mining, staking, DeFi yields, airdrops, and receive them as payments for services, then it is subject to taxation.
If you are an individual who frequently deals with cryptocurrency transactions, make sure that you are well aware of the taxable and non-taxable events mentioned above.
Cryptocurrency is taxable as income and capital gains. Here is the explanation of how and why the crypto is taxable as income and capital gains.
Taxable as income
Cryptocurrencies are taxable as income when you receive them from your employer in the form of your monthly or annual salary or anything. If you accept crypto as a source of income, then it will be considered under income tax, which makes you obliged to pay adequate income tax.
If you accept cryptocurrencies as payment or reward for goods and services, then you have to report them under the regulatory compliance and are subject to income tax.
According to the IRS and other regulatory agencies, staking rewards you get from various crypto projects and mined cryptocurrencies will come under the classification of income tax.
Mined cryptocurrencies are considered income since the IRS classifies them under self-employment income.
The taxable amount you bear will be based on the market value of the rewards and income you received.
Other rewards you get and incentives you earn from the cryptocurrency transactions and activities must be reported as income, and pay the required tax amount according to the current value of the rewards.
Taxable as Capital Gains
Capital gains tax is a tax imposed on the profit you make from selling an asset that has increased in value or profit. The concept of capital gains tax applies to assets like real estate, stocks, bonds, and other investments.
The tax is generally calculated based on the assets’ selling and original purchase prices. All the cryptocurrency transactions that provide capital gains are subject to this tax.
For example, when you sell your cryptocurrency for cash and you make a profit from that particular transaction, then you need to report it to the concerned authorities and pay the tax. Here are some other taxable events that come under the capital gains scheme.
- Conversion of one crypto to another. While converting one crypto to another, you have to technically sell your crypto before buying another one. This transaction is considered a sale, and the IRS considers it taxable. Selling crypto is classified under capital gains taxes.
- Spending crypto on goods and services. If you use cryptocurrencies like Bitcoin to purchase different goods and services, you have to report the transaction and pay the tax, this is because agencies like the IRS claim that spending crypto is not that much different from selling it.
Spending cryptos on NFTs and receiving crypto as a gift, and selling it later for profit, also comes under the category of taxation as capital gains. Use the following formula to find capital gain or loss on a particular crypto transaction.
Capital Gain / Loss = Proceeds – Cost Basis
- Proceeds: the fair market value of what you received in exchange for the crypto involved in the transaction, at the time of the transaction.
- Cost basis: it is the original purchase price + any transaction costs involved.
Capital gains are of two types: short-term capital gains and Long-term capital gains. Short-term capital gains apply to crypto held for one year or less and are taxed at the ordinary income tax rate. Long-term capital gains apply to crypto held for more than one year.
Crypto Regulations
The Markets in Crypto-Assets (MiCA) is the European Union’s comprehensive framework for regulating crypto-assets and crypto-asset service providers.
It has introduced a unified regulatory framework for crypto assets across all European Union countries.
The regulation put forward the requirement for issuers to publish a whitepaper, and requires operators to get a license and meet operational requirements for crypto-assets and crypto-asset service providers, regulates stablecoins, ensures market integrity, protects the customers, etc.
Crypto Taxes: Reporting Rules
According to the U.S. tax rule, the Internal Revenue Service (IRS) treats crypto as property, which means almost every transaction or crypto activity must be reported on the federal income tax return.
To comply with the reporting rules, you must track your income, capital gains, and capital losses from your crypto transactions.
Mandatory reporting on Form 1040 is the first step in crypto tax reporting. All U.S. taxpayers must answer the digital asset question on their Form 1040.
This should be answered regardless of whether you have a taxable event. The four questions related to the “digital asset” are given below
- Received crypto as payment for property or services.
- Received crypto from mining, staking, or other rewards.
- Received new crypto from a hard fork.
- Sold or exchanged crypto for property, services, or other digital assets.
While reporting the transaction on Form 1040, you must check whether you are engaged in any of the activities above.
To report your crypto transactions, you will have to use Form 1040 Schedule D as your primary crypto tax form. Your total capital gains and losses should be added in this form.
Sometimes you might need to use other tax forms like 1099-NEC or 1099-MISC to report your activity.
This change in tax forms is because every crypto transaction activity possesses a different nature and demands a different kind of treatment.
- Schedule 1 (Form 1040): It is used to report miscellaneous income from activities, including staking rewards, airdrops, and soft forks.
- Schedule C (Form 1040): This is generally used by self-employed individuals and sole proprietors because this form is used to report income from a crypto-related trade or business, such as crypto mining.
- Form 1099-MISC or 1099-NEC: You will get these forms from the concerned exchanges if you have earned more than $600 in rewards or non-employee compensation. You must report the income even if you didn’t get this special form.
New rules for 2025: Form 1099-DA
Some rules and crypto tax reporting procedures have changed since the start of the 2025 tax year. Here are the major crypto tax reporting changes that every crypto broker must adhere to.
According to the 2025 tax year reporting rules, the U.S. crypto exchanges will issue a Form 1099-DA to customers and the IRS to report the digital asset sales and transactions.
The form will report gross proceeds, and the inclusion of the cost basis reporting will be delayed until next year.
The newly introduced rules will require taxpayers to track their cost basis for each digital asset wallet separately. This trend will reportedly end the practice of the universal accounting method in the crypto sphere.
Crypto Taxes: Tax-Efficient Strategies
Building tax-efficient strategies is as important as knowing all the basics of the crypto taxation process.
By taking advantage of some strategies, you can derive notable strategies that help you in your crypto journey.
You can use techniques like tax-loss harvesting, long-term holding periods, and tax-advantaged accounts to build a tax-efficient crypto strategy.
Here are some techniques that might be helpful to you in your crypto journey.
- Hold crypto more than one year: This is one of the most widely used techniques. Holding your crypto more than one year qualifies your profits for lower long-term capital gains tax rates, which will reportedly range from 0% to 20%.
- Harvest losses: selling crypto assets that are worth less than your purchase price will harvest losses. These realized losses can be used to offset the capital gains from other investments. Loss harvesting allows you to sell underperforming digital assets at a loss to offset realized capital gains.
- Offset income: if your capital losses exceed your capital gains at the time of tax reporting, you can use up to $3,000 of the excess loss to offset your ordinary income.
- Donate crypto to charity: Donating crypto assets directly to a qualified 501(c)(3) charity is a highly tax-efficient strategy.
- Gifting crypto: As per the 2025 crypto tax regulations, you can gift up to $19,000 in crypto per person without triggering a gift tax return. Gifting is considered a non-taxable event for the giver, but the recipient will be taxed when he/she sell.
- Crypto IRAs: Some investors hold their crypto assets in self-directed IRAs to eliminate taxes or gains. This is a good tax-efficient strategy that can be implemented in your crypto journey.
Disclaimer: This information is for informational purposes only and is not tax or legal advice. Consult a qualified tax professional for guidance on your individual circumstances.
These are some common tax-efficient strategies that you can use. The strategies mentioned above will vary according to the users’ region, the country’s policy, and its tax system. So if you are into it, do comprehensive research on the tax laws and act accordingly.
Also Read: The Sandbox Long-Term Price Prediction: What to Expect in the Long Run?
The Bottom Line
Governments of all countries have started to regulate cryptocurrency laws and are actively trying to implement a proper tax system for it.
Authorities of countries, including the United States, consider crypto as property and make it subject to income and capital gains tax.
Tax authorities like the IRS are implementing the latest methods to track crypto transaction data and include crypto under a well-defined structure.
If you fail to report crypto transactions and pay taxes, you can face severe penalties, including big fines and possible criminal charges like tax evasion.
You might face financial penalties like a civil fraud penalty, an accuracy-related penalty, Interest on unpaid taxes, and back taxes as part of the punishment. Criminal charges, including imprisonment and asset seizure, will also be applied to those who fail to report and pay crypto taxes.
