6 Things Crypto Investors Often Forget To Plan for Until Tax Season
Written by
Dawn Allcot
Edited by
Rebekah Evans
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Investing in cryptocurrency adds another layer to tax preparation. Smart investors should be planning throughout the year for any tax ramifications related to the sale of crypto investments. But it’s easy to let the finer points slip through the cracks at tax time.
Here are five elements to watch for, so you can maximize your tax savings while ensuring you don’t under-report any crypto gains.
Transaction Tracking
Investors often trade crypto on multiple platforms, which can create record-keeping confusion. Yonatan S. Levoritz, founding attorney at Levoritz Law Firm, recommended using software like Cointracker to centralize crypto losses and gains.
“This is a very common problem for investors and traders of crypto,” Levoritz said. “If the taxpayer misses gains associated with a platform, they can be subject to fines, penalties and interest or worse, jail.”
It’s rare to go to jail for under-reporting crypto gains, but if the IRS can prove tax evasion, you could face a prison sentence. In 2024, Frank Richard Ahlgren III was the first to receive a prison sentence for underreporting multimillion dollar crypto gains, according to the Department of Justice (DOJ).
Reporting Across Multiple Platforms
Beginning in 2025, crypto platforms will send Form 1099-DA (Digital Assets) to crypto investors and the IRS to track and report cryptocurrency transactions, per the IRS. To make sure you don’t miss a form, be sure to keep a close eye on your email (including junk mail and “promotions” folders) and your regular postal deliveries as tax time approaches.
But, taxpayers are responsible for reporting all crypto gains, including payments and earnings from the sale of crypto, even if they don’t receive a 1099.
Once again, Levoritz recommended Cointracker as a solution to tracking crypto across multiple platforms. “They even have a service that will help you collect and organize your gains and losses to help make sure you don’t miss a deduction,” he said.
Identifying Taxable Events
If you use crypto to make a purchase, are you subject to taxes if the crypto appreciated between the time you bought it and used it?
“Changing crypto for fiat currency or buying items with crypto is a taxable event,” Levoritz said. “You’ll be taxed on the cost basis — the difference between the buy price and the sell price.”
You need to report crypto sales that result in gains whether or not you receive a 1099-DA.
Keep in mind that your cost basis the cost of any broker commissions or transaction fees. This may not appear on your 1099-DA, so be sure to keep careful records to report accurate capital gains.
Wash Sale Misconceptions
Traditional investors know that you can sell stocks at a loss to offset capital gains and reduce your tax liability. But you can’t count that loss if you buy back an investment within 30 days. Many people dabbling in crypto believe the same rule applies, but it doesn’t.
“People misunderstand that crypto is property and not securities,” Levoritz explained. “You can buy and sell crypto as many times as you like without having to worry about the ‘wash rule.’ It’s unlikely to come about in the future, either. [Recognizing] crypto as a security could violate Congress’ power to create and mint currency.”
Crypto Tax Rates
Tax reporting for crypto shares some characteristics with how the IRS treats both securities and property (other than your primary home).
If you sell your crypto within a year of purchase, your gains are taxed as regular income. If you hold your crypto longer than a year, you’ll pay the lower, long-term capital gains tax rate.
Maximum Write-offs
As with stocks, you can only deduct a maximum of $3,000 in losses on crypto sales. However, there’s no limit to the amount of crypto earnings you can offset with losses.
Editor’s note: This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
More From GOBankingRates
