With bitcoin’s price hovering around $100,000, crypto is once again a hot topic for many investors. After recent post-election gains, some investors might be looking to sell their positions as part of their end-of-year tax strategy. Unfortunately, crypto taxes seem to be a confusing topic for many.
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To help newer investors navigate the tax landscape of crypto, GOBankingRates spoke with tax and investment experts who shared their advice on what you should be aware of.
The IRS Treats Crypto Like Property
When some people think of crypto, they think of it as a currency. After all, you can use coins like bitcoin or dogecoin to make purchases at select retailers. However, when taxing crypto, the Internal Revenue Service (IRS) considers it property. That means it’s taxed the same way your stock investments would be taxed.
“This means every time you sell, trade or use crypto, you may owe taxes on the gains,” explained Antwyne DeLonde, a former portfolio manager and CEO of VisionX. “For example, if you bought bitcoin at $20,000 and sold it at $25,000, you’d need to report the $5,000 profit as taxable income. It’s important to keep detailed records of all transactions.”
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Buying Something With Crypto Is a Taxable Event
While many people use crypto to diversify their investment portfolios, others also consider it a store of value. They use it to make certain purchases, which may have unintended taxable consequences.
“When you use crypto to buy something, it’s considered a sale of the crypto,” said Lisa Greene-Lewis, tax expert at TurboTax. “The difference between what you paid for the crypto and its value when you use it to make a purchase is considered a capital gain or loss.”
Getting Paid With Crypto Is Taxed Like Ordinary Income
Depending on your employer, you might be paid for your work in more unconventional ways. If you’re paid in crypto, your income would be taxed just like it would be if you were paid in U.S. dollars or any other currency.
“If you receive crypto as payment for services, it is taxed as ordinary income based on the fair market value (FMV) of the crypto the day you receive it,” said Green-Lewis. “The tax rate is based on your ordinary tax rate, which is dependent on your taxable income.”
She said if you are an employee and receive a W-2, the crypto should be included. If you’re a contractor or freelancer, the crypto should be reported on your 1099-NEC, which you should get from the payor if you earn at least $600 from them during the year.
How Crypto Transactions Are Reported Will Change in 2026
Thanks to the Infrastructure Bill, the way crypto transactions are reported will undergo major changes that investors need to understand. In 2026 — for tax year 2025 — brokers and crypto platforms will be required to report all crypto sales transactions directly to the IRS on a new form, 1099-DA.
“Investors will need to provide their brokers or crypto platforms with the cost basis — the original value of their crypto — by Jan. 1, 2025, so they have an accurate cost basis to report if they sell their crypto,” said Green-Lewis.
Staying Organized Is Crucial
Taxes can be complicated, even in the simplest of situations. Add more complex investments like crypto, and tax season can be even more complicated. Whether you do your own taxes or hire a professional to do them for you, staying organized is essential.
“Keep detailed records of all your crypto transactions, including dates, amounts and the value at the time of each trade or sale,” said DeLonde. “This will make tax time easier and ensure you stay compliant. Using crypto-specific tax software can help simplify this process.”
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This article originally appeared on GOBankingRates.com: 5 Things New Investors Need To Know About Crypto Taxes
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