When the IRS crypto tax, the U.S. Internal Revenue Service’s enforcement of tax rules on digital assets. Also known as cryptocurrency tax obligations, it treats Bitcoin, Ethereum, and all other tokens as property—not currency. This means every trade, sale, or even using crypto to buy coffee triggers a taxable event. If you bought $1,000 worth of Bitcoin in 2023 and sold it for $1,500 in 2024, the $500 profit is a capital gain. The IRS knows this. They’ve been matching exchange data, wallet addresses, and bank transfers since 2019. Ignoring it isn’t an option anymore.
What most people don’t realize is that crypto capital gains, the profit you make when selling or trading digital assets are taxed differently based on how long you held them. Hold for less than a year? Short-term gains are taxed at your regular income rate—up to 37%. Hold over a year? Long-term gains get a lower rate, often 15% or 20%. But here’s the catch: swapping one coin for another, like trading Ethereum for Solana, is still a taxable sale. You can’t avoid it by just switching tokens. And if you earn crypto from staking, airdrops, or mining? That’s ordinary income, taxed at your paycheck rate the moment you receive it. The crypto tax reporting, the process of documenting and filing crypto transactions to the IRS isn’t optional. Form 1040 now has a direct question: "Did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?" Answer "no" when you should’ve said "yes," and you’re asking for an audit.
The IRS crypto audit, an IRS investigation into unreported or misreported cryptocurrency transactions is no longer rare. In 2024, the IRS sent over 15,000 crypto-related audit notices. They’re using data from Coinbase, Kraken, Binance.US, and even blockchain analysis firms like Chainalysis. If your bank deposits jump after you cashed out crypto and you didn’t report it, they’ll find you. Penalties start at 20% of the unpaid tax and can climb to 75% for fraud. And yes—this applies even if you’re not a U.S. citizen but lived here part of the year, or if you used a non-U.S. exchange. The IRS doesn’t care where you traded; they care what you earned.
You don’t need to be a tax expert to get this right. Tools like Koinly, CoinTracker, and TokenTax auto-import your transactions from wallets and exchanges, calculate your gains and losses, and generate IRS-ready reports. But even the best software won’t help if you’re missing data. Keep records of every transaction: dates, amounts, values in USD at time of trade, and what you traded for. If you lost your private keys and can’t prove your cost basis? The IRS will assume your cost was $0. That means you owe tax on the full sale amount. That’s not a mistake—that’s a financial disaster waiting to happen.
What you’ll find below isn’t theory. It’s real cases, real mistakes, and real fixes from people who’ve been through it. From how to handle airdrops from obscure DeFi platforms to why using a non-KYC exchange doesn’t make you invisible to the IRS, these posts cut through the noise. Whether you’re a beginner who bought your first Bitcoin or a trader who moved between 10 exchanges last year, you’ll find what you need to get compliant—and stay out of trouble.
Understand how capital gains tax on cryptocurrency works in 2025, including IRS rules, tax rates, reporting requirements, and common mistakes to avoid. Know what triggers a taxable event and how to minimize your liability.