Crypto Tax 101: How the IRS Taxes Your Cryptocurrency in 2025

Cryptocurrency Tax may be decentralized, but in the eyes of the IRS,  it’s very much a taxable asset. As crypto adoption rises, more Americans are asking: How does the IRS tax cryptocurrency in 2025?

This guide breaks down everything you need to know about taxing cryptocurrency, how capital gains are calculated, what income counts as taxable, and how to stay compliant. Whether you’re a casual trader, long term investor, or a small business owner accepting digital payments, this is your go to resource.

Is Cryptocurrency Taxable in the U.S.?

Yes cryptocurrency is considered property by the IRS. That means it’s taxed similarly to stocks or real estate.

Whenever you sell, trade, or use crypto for goods or services, it becomes a taxable event. The IRS requires you to report:

• Capital gains (or losses) when selling crypto

• Income from mining, staking, or airdrops

• NFT earnings and royalties

• Business transactions conducted in crypto

How the IRS Classifies Crypto Transactions

The IRS groups crypto activity into two main categories for taxation:

1. Capital Gains (or Losses)

This applies when you:

• Sell crypto for fiat (USD, EUR, etc.)

• Trade one crypto for another

• Use crypto to buy a product or service

You’ll pay short term or long term capital gains tax, depending on how long you held the asset.

2. Ordinary Income

This applies when you:

• Receive crypto from mining or staking

• Get paid in crypto for services

• Receive airdrops or rewards (like from Coinbase Learn and Earn)

This is taxed as ordinary income, just like a salary or freelance income.

Crypto Capital Gains Explained (Short-Term vs Long-Term)

Example:You bought Bitcoin at $20,000 and sold it at $30,000 after 14 months → You owe long term capital gains tax on the $10,000 profit.

But if you sold it after 6 months → It’s a short term gain, taxed at your regular income rate.

Crypto Income: What Must Be Reported?

Here’s a list of taxable income events in crypto:

If you’ve received free tokens or earned rewards from staking programs, you must include these amounts as income at their fair market value on the day received.

Do You Have to Report Every Crypto Transaction?

Yes, the IRS requires accurate reporting of all transactions, no matter how small. That’s why using a crypto tax calculation service

• Trade history

• Buy/sell price tracking

• Cost basis calculations

• Capital gains/loss reports

The IRS has also updated Form 1040 to include a question:

“At any time during the year, did you receive, sell, exchange, or otherwise dispose of any financial interest in virtual currency?”

You must answer truthfully and provide supporting documentation.

Crypto Tax Deadlines for 2025

Filing late without reporting your crypto activity can lead to interest, penalties, or audits.

Common Mistakes in Crypto Tax Filing (and How to Avoid Them)

❌ Failing to report small gains
❌ Forgetting airdrop income
❌ Mixing wallet addresses
❌ Ignoring NFTs
❌ Not tracking cost basis

✅ Solution:  Use our cryptocurrency tax service to import trades, classify income, and get IRS ready reports.

Does Coinbase Report to the IRS?

Yes. Coinbase and other U.S. based exchanges are required to issue Form 1099 to both you and the IRS.

This form includes transaction data and can trigger IRS review if not reported accurately. If you use Coinbase Learn and Earn, staking, or trading, be sure to report it properly using a service like the CryptoTaxEase for proper compliance and peace of mind.

Stay Compliant and Confident in 2025

As crypto adoption increases, the IRS is ramping up enforcement. Don’t leave your taxes to chance.

Use a trusted crypto tax calculation service like CryptoTaxEase to track, report, and file with accuracy and confidence. Whether you’re handling NFT sales, staking rewards, Coinbase earnings, or simply trading altcoins understanding how to tax cryptocurrency is key to staying ahead.