Cryptocurrency is taxed when you receive it as payment or have a transaction where you sell or trade it. If you just buy it and hold onto it, it won’t be taxed until you do something with it. Even if you don't receive a 1099-B, 1099-MISC, 1099-NEC, 1099-K, or summary tax statement for your crypto transactions, it’s your responsibility to report them.
For tax purposes, crypto is either considered earned income or treated as property sales.
It’s considered earned income when you:
- Receive it as payment for goods or services (like if you were paid in cash)
- Mine it and make a profit
- Receive new crypto from a hard fork followed by an airdrop or other transfer
It’s treated as a property sale (with capital gains or losses) when you:
- Sell it (like you would stock)
- Exchange it (swap one type of crypto for another)
- Spend it (use it as payment for goods and services)
- Convert it to US dollars (sell crypto to buy regular currency)
If someone pays you in crypto and then you sell it for a profit, you'll pay taxes on the income and pay the capital gains tax.
If you donate crypto, it isn’t taxed. In fact, you may be able to get a deduction for the donation.
If someone gave you crypto as a gift, you only need to report it when you sell, exchange, or dispose of it.