It's important to note that possessing crypto on its own doesn’t generate a taxable event. You can buy and hold the currency without incurring taxes, even if the value increases. A taxable event occurs, when you enter into an action that generates a gain – e.g. you sell, trade or dispose of your cryptocurrency. 

For instance, you buy $1,000 of currency and later sell it for $1,500. You would need to report and pay taxes on the $500 gain. If you dispose of the currency, but you take a loss, you can also recognize that on your taxes. 

The IRS has been making sure crypto investors are paying their taxes. Form 1040 will require you to divulge if you had any sort of transaction related to a virtual currency in 2021. If you had more than 200 transactions and more than $20,000 in trading during the year, any Crypto Exchange you used is required to report these, by filing a 1099-K. 

Like taxes in general, the rate you pay is dependent on your income, tax filing status, and the length of time you owned the crypto before seeing it. If you owned it for less than a calendar year (365 days) then a short-term gains tax applies and is equal to income taxes. If you owned for more than a year, then long-term gains taxes are applicable. 

Trades between coins are where crypto taxes get complicated. A crypto trade is a taxable event. If you trade one cryptocurrency for another, you're required to report any gains in U.S. dollars on your tax return.

Every time you trade cryptocurrencies, you need to keep track of how much you gained or lost in U.S. dollars. That way, you can accurately report your crypto gains or losses.

Need help determining if you owe taxes on your crypto? We can help – contact us and make an appointment today.