HelenC12
Expert Alumni

Get your taxes done using TurboTax

It depends whether your cryptocurrency was considered earned income or treated as property sales.

 

Cryptocurrency received as payment for goods and services is taxed as earned income:

  • If you earned money by providing a service or selling something, you’d have to report it as earned income (either wages or self-employment income) as if you’d been paid in cash. 
  • See How do I report income from self-employment?

Cryptocurrency sold, exchanged, spent or converted, is treated as sale of property:

  • Like property sales or the sale of stock, any gain or loss from the sale or trade of cryptocurrency is reported as a capital gain or loss. See How do I report Bitcoin or other cryptocurrency as a capital gain?
  • If you buy and sell it within 12 months, it’s treated as a short-term capital gain.
  • If you hold it for over 12 months, it’s taxed at the lower, long-term, capital gain rates.

 

Cryptocurrency received as income, and then held and sold for profit, is taxed as both:

If you were paid in cryptocurrency, you'd first pay taxes on the earned income. Then, if you later sold it for a profit, you'd pay the capital gains tax (short or long-term, depending on how long you held it). You'd also need to keep track of the value it had when you got it, and when you sold/used it.

 

As an example: If you were paid in cryptocurrency on Monday, and then used it to pay for something else on Friday, you'd have to know what it was worth during both days in order to calculate if you needed to report a gain or a loss. In this case, it would be like paying for something with stock instead of cash.

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