Cryptocurrency and Taxes: Do I Report Bitcoin?

Yes, the IRS treats cryptocurrency and other digital assets as property, and your return asks whether you received or disposed of any during the year.

That question sits near the top of the federal return, and it is meant to be answered truthfully.  Simply buying crypto with dollars and holding it is generally not a taxable event.  Selling it, spending it, trading it for another coin or being paid in it usually is.

Crypto does not have to be turned into cash to matter for taxes.  Whether an activity is taxable depends on what you did, and rules in this area change, so we confirm the current ones.

Each sale or exchange is a separate transaction, and the gain or loss is the difference between your basis and what you received.

How long you held the asset matters.  Holding for a longer period before selling generally leads to different tax treatment than a quick sale, and the IRS explains the cut-off.  Transactions are typically listed on Form 8949 and summarized on Schedule D of the federal return.

Frequent traders can end up with hundreds of lines.  Exchanges may give you a statement, but the statement may not show your true basis, especially if you moved coins between wallets.  That is why your own records matter.

General patterns.  Your records decide the actual figures.

The most common mistakes are forgetting small trades, missing income from rewards, guessing at basis and answering the digital asset question incorrectly.

Another concern is getting a notice about unreported activity.  If you receive a letter from the IRS, do not ignore it, keep a copy and read our guide on what to do when you receive an IRS notice. The IRS first contacts people by mail, not by text or social media, and anyone demanding crypto payment for a tax bill is a scam.

Alabama has its own return and rules.  Most income taxable federally is taxable in Alabama, with exceptions, so crypto gains generally carry over.  We check how your activity is treated on both.