That depends.
Stock brokers are required to send a form 1099-B to report your stock sales, and the IRS gets a copy, so they can match the report to your tax return and make sure you report everything. A quick google search shows that as of February 2017, Cryptocurrency exchanges were not required to issue 1099-B forms, but the IRS was also in the middle of suing Coinbase for all their customer records. I don't know what the current situation is.
If no 1099-B is issued, then it is all on the honor system. But be aware of 2 key points:
•The statute of limitation for tax returns is normally 3 years, but is 6 years if you under-state your tax due by more than 25% or deliberately omit income (fraud). The penalties and interest are about 1% of the amount of tax due per month plus a possible 25% extra tacked on if they find the error or omission was intentional.
•If you are audited, the IRS can pull your bank account records and claim that every deposit is taxable income, and you have to prove it's not. And if they find money from sale of cryptocurrency, they don't have to allow you any cost basis unless you can prove it. (In other words, they can declare the entire amount to be a taxable short term capital gain unless you have proof of when you purchased it and what you originally paid.)
So you should keep excellent records of your transactions; date purchased, price paid, date sold, price realized. And keep those records for at least 7 years, whether you intend to be honest or not.
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If your records are detailed enough that you can determine which particular coin you are buying and selling, you may be able to minimize your taxable gains by choosing to sell a specific coin at a specific time.
For example, suppose you bought 1 BTC on 4/1/2015 for $500, and 0.5 BTC on 6/6/2017 for $12,000. You sold 1 BTC on December 15 for $15,000.
If you sold the 1 BTC from 2015, you have a gain of $14,500 that is a long term capital gain taxed at 15%.
But, if you sold 0.5 BTC from 2015 and 0.5 BTC from 2017, you have a $1500 short term gain and a $7250 long term gain. (In other words, less total gain, but taxed in different ways.) Depending on when your assets were bought and sold and the different prices, this is a way to influence your tax bill. Of course, if you sold everything, you can't do anything here. And this doesn't change your overall gain, just when you pay for it. Selling your newest or most expensive coins first means less income and tax now, but more later (maybe you think your tax rate will be lower in the future or in retirement). Selling coins older than 1 year and keeping coins that are less than one year old to sell them later, helps you turn short term capital gains to long term gains, which have lower tax rates.
The subject is quite complex and requires excellent recordkeeping. You may want to read up on this if you have lots of BTC with different buy and sell dates.
