Crypto Tax Guide for US Residents 2025

What began as a simple virtual coin, Bitcoin and other cryptocurrencies have expanded into an investment for crypto futures. However, these virtual currencies are not exempt from tax liabilities. 

With the ever-changing regulations of US crypto taxes, in accordance with the cryptocurrency market, new rules are occasionally proposed by the IRS. 

In this crypto tax guide for US residents, 2025, we have compiled the latest updates on filing a tax return for your cryptocurrency assets. 

What is Crypto Currency?

Started in 2009 as a digital currency, Bitcoin, or cryptocurrency in general, is an alternative payment method that uses encryption algorithms. Within a few years of establishment, cryptocurrencies became, and still are, a popular alternative to online payment. 

Is Crypto Taxed by the Government?

In the US, the Internal Revenue Service (IRS) considers cryptocurrencies as a digital asset (assets that can be bought, owned, sold, or transferred electronically) and not as a currency. 

This means that the crypto is regarded and taxed much like stock market shares or real estate. Any time you sell or trade these, you are triggering a capital gain or loss event. These taxable events are reported on Form 8949 and summarized on Schedule D, Form 1040 of the federal income tax return. 

But what does this tax classification of crypto mean to an average investor? 

Changes in the Crypto Tax in 2025

2025 started with a few major updates in the tax filing process for crypto.

• Effective from January 1, 2025, digital asset brokers are required to issue a new tax form, 1099-DA, to report the gross earnings from the sale or exchange of a digital asset through brokers. 
• Effective from January 1, 2026, brokers are required to include the cost basis for a crypto purchase made through their platform on or after January 1, 2026. This should be added to the Form 1099-DA.

How is Crypto Taxed in the USA

As per the IRS regulations, these are viewed as property and are taxed either under Income Tax or under Capital Gains Tax.

The amount of tax that each individual has to pay for their crypto portfolio depends on the earnings made through these coins, specific transactions, and the duration of holding the asset. 

On transactions with short-term capital gains and incomes made through crypto, up to 37% is applicable as tax. For long-term capital gains, the crypto comes under the bracket of 0% to 20% tax. NFTs deemed as collectibles are mostly taxed at 28%. 

Crypto Under the Capital Gains Tax

Anytime you dispose of crypto through activities like selling crypto for fiat currency, trading crypto for stable coins, tokens, etc., or making goods and services purchases with crypto, you’ll have to pay Capital Gains Tax on any profit you made from these transactions. 

There is no fixed tax rate, and you will pay tax depending on the earnings you made through crypto or how long you have held your assets. For holdings less than a year, you’ll pay the short-term capital gains tax rate, and for holdings more than a year, you’ll pay the long-term capital gains tax rate. 

How to Calculate Crypto Capital Gain

When you sell, trade, or spend cryptocurrencies for a profit, it results in a capital gain, and a loss leads to a capital loss. You can calculate the gain or loss by determining your cost basis (the sum of coin cost during purchase and associated fees). 

In cases where you received crypto as a gift, use the market value of the day you received it in USD. Now, subtract the cost basis from the selling price to calculate the capital gain or loss, based on which you will be paying Capital Gains Tax. 

You won’t be paying tax in instances of loss. However, you can use a strategy called “tax loss harvesting” to reduce your tax on gains. Tax loss harvesting is a method where you counterbalance your long-term losses with long-term gains, and similarly for short-term, to reduce your tax. 

Income Tax for Crypto

In certain instances, crypto transactions are viewed as a source of income and are subject to income tax. Some of the activities that would be considered as earning crypto include getting paid for your service or product in crypto, airdrops, rewards for staking and mining, DeFi interest, or receiving a referral bonus. 

But since the rules for considering cryptocurrency as income rather than a capital gain aren’t detailed by the IRS, you are advised to consult a crypto tax accountant before filing your return. 

How to Calculate Income Generated through Crypto

Calculating the tax for crypto as income is just like calculating regular income tax. Take the market value of the day you earned crypto in USD, and that’s your crypto income. You’ll be paying tax on this amount at the federal income tax rate and the state income tax rate. 

Tax on Lost or Stolen Crypto

The IRS has recently released a guideline, in March 2025, on instances that are considered theft or losses, which may exempt you from paying the tax for the lost amount. The details of this are listed under section 165(c)(2) post-TCJA.

Compromised accounts fraud, where the funds from an account are transferred under the guise of safeguarding it, investment scams with the motive of making profits, phishing scams involving unauthorized access to accounts, and losses linked to a federally declared disaster are some scenarios that qualify for tax deduction. 

The decentralized nature of the blockchain ecosystem makes it difficult, or rather impossible, to recover lost or stolen cryptocurrency, and no government entity can provide help to retrieve the lost coins. 

In such cases, you can report the scam to the FBI’s Internet Crime Complaint Center (ICCC) and keep a record of details related to the scam, including wallet address and usernames. 

Forms You’ll Need to Include Crypto in Your Tax Return

With a few additional forms, you can file your crypto taxes along with your annual tax return. The major forms you’ll need to complete the filing procedure are:

• Form Schedule D 1040 and Form 8949 for reporting crypto disposals, capital gains, and losses. 
• Form Schedule 1 1040 or Form Schedule(c) 1040 for reporting income earned from crypto. 
• Form 1099-DA (applicable from 2026) for reporting the transactions during the financial year 2025.
• Form 1099-K, issued by crypto exchanges to investors with transaction volume exceeding a threshold, is used to summarize yearly payments.
•  Form 1099-B, provided by brokers to report crypto sales.

Calculating Crypto Taxes for Filing a Return

• List out all your crypto transactions for the year. 
• Determine the taxable crypto activities, as well as the kind of tax that is applicable to each activity (income or capital gains).
• Calculate your profit, losses, and income gained from the activities.
• File the tax either through paper forms, using tax filing apps, or with the help of an accountant. 

Taxable and Non-Taxable Crypto Events

Taxable Events

• Selling crypto for fiat
• Exchanging one crypto with another
• Purchase of goods and services with crypto
• Crypto as payment for the service provided
• Earning mining and staking rewards
• Airdrops and hard forks
• Converting cryptocurrency into stablecoins

Non-Taxable Events

• Transferring crypto coins between one’s own wallets
• Holding digital assets without selling them (HODLing)
• Gifting crypto 
• Donating crypto to a qualified charity
• Using digital assets as collateral
• Buying crypto with fiat

Are NFTs Taxable?

A nonfungible token, or the digital ownership of a unique item such as digital art, is subject to tax implications in certain cases. If you buy and then sell an NFT for profit, you’ll have to pay either short-term or long-term capital gains based on the duration of your holding.

If you create an NFT and then sell it, you’ll have to pay ordinary income tax. In cases where creating NFTs is your main source of income, you may also have to pay self-employment income tax. 

In cases where you’ll be receiving royalties from secondary sales on NFTs, you’ll have to file an ordinary income tax return. If you exchange an NFT for other goods or services, the market value of the NFT at the time of the transaction will be considered as ordinary income.

Is Tax Applicable for Cryptocurrency Miners?

Crypto miners are taxed by the IRS at the fair market value of the coins at the time of receipt, and it is considered ordinary income. If the miner holds the possession of the coin after mining, they will have to pay capital gains tax, based on the fair market value at the time of receipt. 

If the miner operates all the mining activities as a bona fide business, the IRS will let them deduct business expenses from the income earned from mining. However, 15.3% of the self-employment tax would be applicable in such cases. 

Tips to Reduce the Crypto Taxes

Not filing a return on crypto is considered a crime. But there are certain things you could do to potentially minimize your crypto tax liability.  

• Hold the crypto coins for a long period of time to reduce the tax rate, as the long-term capital gains tax rate is less than the short-term capital gains tax rate.
• Sell the underperforming crypto at a loss, which may allow you to balance the capital gains and up to $3000 of ordinary income tax. 
• Gift the crypto to your family members for a tax-free wealth transfer. This is applicable only when the value of the gifting crypto is below the annual or lifetime gifting limits. 
• If you donate crypto to a charity, it may let you deduct the fair market value of the asset held for a long term without incurring capital gains taxes. 
• Using tax-advantaged accounts, such as a self-directed IRA, to hold your crypto assets can give you some defer in tax deductions.
• Choosing the right cost basis calculation method, such as FIFO, HIFO, or Specific Identification, can minimize the tax rate.

Consult your financial advisor for strategies that suit your financial goals the best.

Crypto Tax Guide : Conclusion

Filing a crypto return in 2025 may feel a bit overwhelming due to the complex procedures following the process. But many crypto exchanges and tax consultants offer support, and the IRS has laid down clear guidelines with improved reporting tools and better access to information compared to the previous year. 

Form 1099-DA has changed the IRS policies around DeFi and digital assets brokers. Investors are advised to treat the crypto activities with the same consideration as a traditional investment and make returns on time. You can simplify the tax return process by keeping thorough records with proper risk audits to avoid penalties. 

Taking a strategic approach to tax filing not just protects your virtual investments, but also creates an opportunity for smarter, long-term investment planning.