Cartera Guide to Crypto Taxes 2025

Introduction

The world of cryptocurrency has exploded in popularity, but with its rise comes a new set of challenges — particularly when it comes to taxes. Navigating the complexities of crypto taxation has become increasingly difficult given the rapid evolution of crypto transactions since the IRS’s initial 2014 guidance.

The IRS’s focus on enforcement has grown in recent years, as shown by the prominent “digital asset” question on Individual Income Tax Return (Form 1040):

“At any time during 2022 did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

At Cartera, we’re committed to simplifying this process. We offer cutting-edge tools and resources to help both individuals and businesses stay ahead of the curve and ensure full compliance. As the crypto world continues to mature, it’s imperative to have a trusted partner like Cartera by your side.

What is Cryptocurrency?

Imagine a currency existing entirely online, secured by complex math and tracked on a transparent, tamper-proof ledger distributed across countless computers. That’s cryptocurrency in a nutshell.

Unlike traditional money, cryptocurrencies like Bitcoin and Ethereum operate independently of central banks, offering a new level of financial freedom and security. This revolutionary technology is rapidly gaining global acceptance, with the global cryptocurrency market cap exceeding $3.4 trillion as of December 2024. However, it’s crucial to understand the tax implications of this emerging asset class. Let’s explore how the IRS approaches cryptocurrency taxation.

Understanding the IRS’s Perspective

In the eyes of the IRS, cryptocurrency isn’t some fleeting trend; it’s a legitimate form of currency with real-world value. They recognize its use in everyday transactions and as a store of value, similar to traditional currencies.

This means your crypto activities are on their radar. Whether you’re trading Bitcoin, using Ethereum to purchase goods, or simply holding onto your digital assets, the IRS expects you to report any gains or losses, regardless of where or how you transact.

This highlights the importance of understanding the tax implications of your crypto transactions. Let’s explore the tax rates and how they might affect you.

Tax Rates in Crypto Transactions

Think of your cryptocurrency holdings like a digital version of real estate or stocks in the eyes of the IRS. They classify crypto as “property,” meaning it’s subject to taxation when certain events occur. Don’t worry, it’s not all doom and gloom!

The tax rates vary from 0% to 37% based on the nature of your crypto activities, your holding period, and your overall income. Let’s break down the main ways the IRS taxes your crypto earnings.

Capital Gains: When You Realize a Profit

Imagine you sell a bit of your position in a cryptocurrency for a profit. That’s where capital gains tax comes into play.

Whether you’re swapping it for dollars, trading it for another exciting token, using it to buy that new NFT you’ve been eyeing, or trading into a stablecoin, you’ll owe taxes on the profit earned in the transaction.

The IRS’s take depends on how long you held onto that crypto:

Short-term Gains (less than a year): Expect to pay a higher rate, potentially up to 37%.
Long-term Gains (over a year): Patience pays off! You’ll enjoy a lower tax rate, potentially as low as 0% or up to 20%.

NFT collectors beware: Those digital artworks are considered collectibles, and might be taxed at a 28% rate.

Crypto Income: Earning Those Digital Dollars

It’s not just about selling your crypto. If you’re earning crypto, that’s also taxable income. Think of it like your crypto paycheck. Here are a few ways you might be earning crypto income:

Getting paid in crypto: Maybe you’re a freelancer getting paid in Bitcoin, or an artist selling your work for Ethereum.
Staking your coins: You’re essentially helping secure the blockchain and getting rewarded for it.
Mining: You’re providing the computing power to a blockchain network and getting a share of the spoils.
Airdrops: Free tokens? Sounds great, but remember they’re still considered taxable income.
Earning interest: Earning interest by lending or staking your crypto on decentralized platforms? That’s taxable too.
Referral bonuses: Got rewarded for bringing your friends to the crypto party? That’s also on the IRS’s radar.

Calculating your crypto income tax is usually pretty simple. Just figure out the dollar value of the crypto you received on the day you received it, and apply your regular income tax rate.

Tax-Free Crypto Moves

Don’t worry, not everything you do with crypto is going to trigger a tax bill. Here are some common actions that are generally tax-free:

Buying crypto with regular money: No taxes for simply entering the crypto market.
Moving your crypto between your own wallets: Think of it like rearranging your sock drawer — no taxes involved.
Sending a small crypto gift: Sharing the crypto love with a friend? Small gifts are usually tax-free.
Donating crypto: Sharing your wealth with a good cause? That’s not only tax-free, but it might even be tax-deductible.

Don’t Go It Alone

Crypto taxes can be confusing, even for seasoned investors. Consider partnering with a crypto tax expert (like us at Cartera) to ensure you’re meeting all your obligations and not accidentally running afoul of the IRS.

Staying on the Right Side of the IRS: Crypto Tax Reporting

Navigating the world of crypto taxes might seem daunting, but understanding the IRS reporting requirements is crucial for both individuals and businesses. Let’s break down the essentials to keep your crypto ventures tax-compliant.

Tax Time Basics

Remember those dreaded April deadlines? Well, they apply to your crypto gains too. The U.S. tax year follows the calendar year, and taxes are due every April 15th (June 15th for expats). You can file for an extension until October 15th, but remember that just gives you more time to file, not more time to pay! Make sure to estimate and pay your taxes by the original deadline to avoid penalties.

Crypto Reporting Requirements

When it’s time to file, you’ll need to gather your crypto-related documents along with your usual tax forms. This includes:

Copies of your previous tax returns
Your EIN or SSN
Financial statements
Form 8949 and Schedule D: These are used to report your crypto disposals (gains or losses).
Schedule 1 or Schedule C: Use these to report your crypto income.

You can file these forms either the old-fashioned way (paper!) or through handy tax software like TurboTax.

Crypto Tax Filing: A Step-by-Step Guide

Ready to tackle those crypto taxes? Here’s a simplified breakdown:

Calculate your gains and losses: Cartera’s advanced tooling makes this simpler than ever
Complete Form 8949: This form details your crypto disposals
Attach Form 8949 to Schedule D (1040)
Report crypto income on Schedule 1
Finalize your tax return
Pay your taxes: You can do this online, through IRS Direct Pay, or by mailing a check

Crypto Tax Compliance: Why It Matters

Failing to comply with crypto tax requirements can have serious consequences, from hefty penalties to even business closure.

The IRS has powerful tools to track crypto transactions, so it’s crucial to take your tax obligations seriously.

Get started with your crypto taxes hassle free with Cartera today. Cartera automates and simplifies reporting across 16+ blockchains, making even the most complex transaction histories a breeze to handle, report, and send off to the IRS without unnecessary worries.

The information in this post is intended for general knowledge and informational purposes only. It is not a substitute for professional advice. Every individual’s situation is unique, so it’s essential to consult with your own legal, business, or tax advisor for personalized guidance. Cartera is not liable for any actions taken in reliance on this information.