Crypto Taxes 101: What Every New Investor Needs to Know

In this guide, we’ll break down everything you need to know about cryptocurrency taxes. We’ll break down what you need to know about how crypto is taxed, some common taxable events, and a few ways to (legally) reduce your tax bill. 

How is cryptocurrency taxed?

The IRS treats cryptocurrency as property, just like stocks and equities. That means every time you sell crypto, trade it for another coin, or spend it, you’re triggering a taxable event.

Here’s how it works:

Capital gains tax applies when you sell, trade, or otherwise dispose of your crypto. You’ll incur a capital gain if the price of your crypto has increased since you originally received it.

If you held your crypto for less than a year, it’s taxed as a short-term capital gain. This is taxed at the same rate as regular income (10-37%). 

If you held your crypto for over a year, it’s taxed as a long-term capital gain and is subject to a lower rate (0-20%). 

When you sell your crypto at a loss, you incur a capital loss, which comes with tax benefits. Losses can offset capital gains from cryptocurrencies, stocks, and other assets, and up to $3,000 of income, reducing your tax bill! 

If you earn cryptocurrency, you’ll recognize ordinary income tax based on the fair market value of your crypto at the time of receipt. Examples include: 

• Getting paid in crypto;
• Earning staking or mining rewards;
• Receiving airdrops or referral rewards.

Do I have to pay tax if I don’t cash out?

Many investors believe there’s no need to report if they never cashed out their crypto to fiat currency. However, this is a misconception. 

Remember, cryptocurrency is taxed upon disposal. 

The following transactions are all considered disposals (even if you never cashed out to fiat currency). 

• Trading one cryptocurrency for another;
• Using crypto to make a purchase
• Sending crypto to someone in exchange for goods and services 

How to (legally) avoid crypto taxes

Remember, tax evasion is illegal and can result in penalties such as fines, audits, and even potential jail time. 

Let’s walk through a few strategies that can help you avoid taxes legally: 

Hold for the long term

As noted earlier, the tax code is set up to encourage long-term investment. When you hold your crypto for longer than a year before selling, you’ll pay lower tax (0-20% compared to 10-37%). 

Harvest your losses

Remember, crypto losses can offset gains from cryptocurrency, stocks, and other investments. 

Spend during low-income years

The lower your income, the lower taxes you’ll pay. If you expect to have a lower income this year than you will have in the future, you should consider selling your crypto (and paying less in tax). 

Donate crypto

Donating appreciated crypto to a registered charity is not subject to capital gains tax. In addition, you can claim the donated amount as a deduction on your tax return.  

Use crypto tax software

Manually tracking your crypto transactions for tax purposes can take time and effort. Crypto tax software can help you generate a tax report in minutes and identify your biggest tax-saving opportunities. 

What’s changing with crypto taxes in 2025?

Starting in 2026 (for the 2025 tax year), centralized exchanges will be required to issue 1099-DA (digital asset) forms. That means the IRS will have more information about your crypto income than ever before. 

Here’s what that means:

• When you have capital gains and losses on centralized exchanges like Coinbase or Kraken, it will be reported to you on Form 1099-DA (with an identical copy sent to the IRS).
   
• The IRS will compare your tax return with what’s on your 1099-DA. If the numbers don’t match, expect to get a warning letter for unreported income. 
  
  1099-DA makes it more important than ever for investors to stay on top of their crypto taxes. 

Stay tax-compliant the easy way

Tracking every crypto trade and wallet transaction manually is a full-time job. Luckily, CoinLedger can help. You can import transactions from Tangem Wallet, as well as hundreds of other exchanges and blockchains, so you can file your taxes with confidence. 

It is trusted by more than 700,000 investors worldwide as well as hundreds of other exchanges and blockchains so you can file your taxes with confidence.

Ready to take the stress out of tax season? Try CoinLedger for free.