The United States government requires its citizens to pay ordinary tax and capital gains tax on crypto transactions and investments. Federal agencies have become strict with crypto accounting tax laws and are on their toes to stop money laundering and other illegal activities being funded through crypto assets.
Moreover, the IRS is asking major crypto exchanges to submit their data, which will enable them to track down your crypto transactions and uncover any tax fraud.
That is why you now have to be more cautious of your taxes. You will have to keep a record of all crypto transactions and investments and pay your due taxes accurately. You can also outsource your crypto accounting services to experts like Indian Muneem.
If you are new to crypto taxes, this blog outlines all you need to know about crypto tax laws and compliance in the US in 2025.
When Do I Owe Tax On My Cryptocurrency In The US?
In the United States, the Internal Revenue Service (IRS) categorizes crypto assets and cryptocurrency as property for your federal income tax purposes. As such, your crypto investments are subject to capital gains taxes, just like publicly traded stocks or other capital assets. You’ll trigger capital gains taxes through taxable events, such as buying and selling crypto, receiving staking or mining rewards, and more—all of which we’ll cover in this guide.
Before diving into the specifics of each taxable event, remember that you’ll pay capital gains taxes in one of two ways, with rates adjusted based on your income:
Long-term capital gains tax: 0% to 20% if you hold the asset for more than one year.
Short-term capital gains tax: 10% to 37% if you hold the asset for less than one year.
As you navigate this guide, you’ll gain clarity on the tax implications of each type of transaction. This knowledge will help you stay compliant with IRS regulations and strategically minimize your tax liability.
How Much Crypto Tax Do I Need To Pay?
The crypto tax rate depends on your income, the duration of your crypto holdings, and the crypto income you have generated in a financial year.
If you hold crypto assets for less than 12 months, you will pay between 10% and 37% in tax. But if you hold your crypto investments for more than 12 months or dispose of your crypto holdings after 12 months, you will have to pay tax between 10% and 20%.
Here is the latest crypto tax bracket for you to understand better.
When Do I Owe Capital Gains On Cryptocurrency?
When you dispose of cryptocurrency, you will incur a capital gain or loss based on how the price of your crypto has changed since you originally acquired it. Here are a few examples of crypto disposals that are subject to capital gains tax:
- Selling your cryptocurrency
- Trading it for another cryptocurrency
- Using crypto to buy goods or services
For Example:
Sean buys $3,000 worth of BTC. Later, he sold his BTC for $3,300. In this case, Sean incurs a capital gain of $300.
This gain will be subject to capital gains tax, either as a short-term or long-term gain, depending on how long Sean held the BTC before selling it. If he held it for less than a year, it would be taxed as a short-term gain (at ordinary income tax rates). If he held it for more than a year, it would qualify for long-term capital gains tax rates, which are generally lower.
When Do I Owe Income Tax On Cryptocurrency?
When you earn cryptocurrency, you’ll recognize income based on the fair market value of the crypto at the time you receive it. Here are some common examples of crypto-related income:
- Airdrop rewards: Crypto received through airdrops is considered taxable income.
- Staking rewards: Earnings from staking crypto are taxable as income at the time you receive them.
- Mining rewards: Crypto earned through mining is treated as income based on its value when mined.
For Example:
If you receive 1 ETH from staking when the fair market value of ETH is $2,000, you’ll recognize $2,000 of taxable income.
This income is subject to ordinary income tax rates, and you’ll need to report it on your tax return. Later, if you sell or dispose of the crypto, any change in value from the time you received it will be subject to capital gains tax. Understanding these rules helps ensure compliance and proper tax planning.
Crypto Transaction Types & Taxes Incurred On Them
Here is a list of non-taxed and taxed crypto transactions.
| Non-Taxable Crypto Transactions | Crypto Income Tax Transactions | Crypto Capital Gains Tax Transactions |
| Transferring crypto to yourself (another wallet) | Employee or freelance wages paid in crypto | Swapping a token for a different token on a DeFi exchange |
| Buying crypto with cash and holding it | Earning new tokens from liquidity mining | Spending crypto to buy goods or services |
| Receiving a gift in crypto | Earning tokens from yield farming | Removing crypto from liquidity pools |
| Giving a gift in crypto (up to $18,000 in 2024) | Interest earned from DeFi lending | Selling or converting crypto into fiat |
| Donating crypto to a 501(c)(3) non-profit | Selling NFTs you created | Selling NFTs you bought |
| Crypto mining earnings | Crypto margin trading | |
| Token airdrops | Crypto derivatives |
What Happens If You Don’t Pay Your Crypto Tax?
The IRS has the authority to enforce severe penalties for tax fraud, including criminal prosecution, up to five years in prison, and fines of up to $250,000. In recent years, the IRS has intensified its focus on cryptocurrency tax compliance.
A key development is the inclusion of a cryptocurrency question on the main US income tax form (Form 1040). Every US taxpayer must answer this question under penalty of perjury:
“At any time during 2023, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
This question underscores the IRS’s commitment to tracking cryptocurrency transactions. As cryptocurrency adoption grows, it’s expected that the IRS will increase its efforts in conducting cryptocurrency tax audits and prosecuting non-compliance.
Staying informed and accurately reporting your crypto activities is essential to avoid penalties and ensure compliance with tax regulations. Another way to save yourself from heavy penalties and legal notices is outsourcing accounting for cryptocurrency to trusted firms.
How Do You Manage Your Crypto Tax Compliance?
You can use crypto accounting software to easily track and manage your crypto transactions and taxes accordingly. However, doing taxes, tracking investments, and staying up-to-date with the latest laws is frustrating.
The best way is outsourcing accounting for cryptocurrency, which saves you time and gives you peace of mind while you focus on more important things in your life. One of the leading firms offering expert cryptocurrency accounting services is Indian Muneem, where you get crypto specialists to manage your digital assets with full compliance. Hire Indian Muneem accountants to efficiently manage your crypto accounting, reporting, and auditing professionally. Get in touch with us today!
