Bitcoin taxes
in the US
Your guide to navigating bitcoin tax compliance in the United States.
Learn about IRS reporting requirements, federal rates, and how to file your taxes properly without overpaying.
This guide is for educational purposes only. Bitcoin Well is not responsible for any tax liabilities, penalties, or interest charges resulting from your use of this information. The IRS has not reviewed or endorsed this content. We make no warranties about the accuracy, completeness, or reliability of the tax information provided. Always consult with a qualified CPA, enrolled agent, or tax attorney before making tax decisions.
This content does not constitute tax, legal, or financial advice. The information provided represents our understanding of current federal tax rules as they apply to bitcoin. Tax laws change frequently and vary by individual circumstances. State and local taxes may apply differently. Your specific situation may require different treatment than described here.
Bitcoin tax rules: simplified
Every bitcoin transaction creates a potential tax obligation. Our guide helps you navigate what you owe, when you owe it, and how to stay compliant.
Common Tax Challenges
- Determining which transactions are taxable
- Calculating correct cost basis across multiple purchases
- Understanding federal vs. state tax obligations
- Navigating new IRS reporting requirements
Why bitcoin taxes can be challenging
Bitcoin's unique properties create tax complexities that many investors aren't prepared for.
What makes bitcoin taxes tricky:
- Hidden taxable events: That $5 coffee purchase? Taxable
- State rules vary: California treats bitcoin very differently than Texas
- Rule changes: The IRS seems to introduce new reporting requirements every year
- Serious penalties: Up to 75% of unpaid tax plus interest
Here's how we help:
- Clear guidelines: We translate IRS rules into plain English
- Smart strategies: Legal ways to reduce your tax burden
- Step-by-step process: From tracking to filing, we cover everything you need to know
- Proactive planning: Stay ahead of changes before they take effect
Our aim is to give you a clear, simplified summary of bitcoin tax rules.
Always consult a qualified tax professional for personalized advice.
Bitcoin tax fundamentals
Understanding how the IRS views bitcoin is step one. Get this wrong, and every other decision compounds the mistake.
How the IRS sees your bitcoin
- Bitcoin is property, not currency (IRS Notice 2014-21)
- Every transaction matters: Unlike spending dollars, spending bitcoin creates a tax event
- Gains and losses apply: Just like selling stocks or real estate
- Foreign currency rules don't apply: No $200 exemption for small transactions
Two types of bitcoin taxes
Taxes on bitcoin fall into two general categories that are treated differently by the IRS.
Capital Gains Tax
When you profit from bitcoin:
- Selling bitcoin for USD: The most obvious taxable event
- Buying goods/services: Yes, that Tesla purchase is taxable
- Trading BTC for other cryptos: Any exchange of value counts
Ordinary Income Tax
When you receive new bitcoin:
- Payment for services: If paid in bitcoin, it's income
- Mining/staking rewards: Taxed at fair market value when received
- Learn more in our Bitcoin Income Tax Guide
The taxable event trap
Using bitcoin for everyday purchases triggers taxes, creating a major practical barrier to adoption.
Example Scenario
You buy bitcoin at $50k. Later, you use it to buy a $100 gift card when bitcoin is worth $100k.
- Your gain: $50 (proportional to amount spent)
- Your tax: Capital gains on that $50
Reality check
These rules make everyday bitcoin spending impractical. Most US holders treat bitcoin as a long-term investment rather than spending money, with the tax code essentially forcing this behavior.
Push for change
Many believe Congress should pass a de minimis exemption for small BTC transactions.
This simple fix would allow everyday bitcoin use without the tax reporting nightmare.
The takeaway
Track every single transaction, no matter how small.
Consider contacting your representatives about supporting common-sense bitcoin tax reform.
Form 1099-DA: the new reality
As of January 1, 2025, exchanges must report your bitcoin transactions directly to the IRS.
Learn more about Form 1099-DA requirements directly from the IRS.
- Your tax ID
- Every sale or exchange
- Gross proceeds
- Transaction dates
- Cost basis reporting
- Automatic gain/loss calculations
- FIFO is assumed; keep meticulous records for Specific Identification
- All major US crypto exchanges
- Payment apps (PayPal, Venmo)
- Trading platforms (Robinhood, eToro)
- Decentralized exchanges (DEXs)
- Non-custodial platforms (like us!)
- Peer-to-peer transactions
Starting January 1st 2027: exchanges must withhold 24% of your proceeds if your tax documentation is insufficient. The days of anonymous bitcoin trading on major platforms are over. Plan accordingly.
See our complete IRS Reporting Guide for more information.
Your bitcoin tax obligations
You owe taxes whenever you sell, trade, or spend bitcoin. This section covers federal taxes only.
State taxes vary widely; see our State-by-State Tax Guide for more information.
Federal capital gains tax on bitcoin
Sell bitcoin for more than you paid? You owe capital gains tax to the IRS.
- Federal tax rate: 10-37%
- Common triggers: Day trading
- Ouch: Same rate as your paycheck
- Federal tax rate: 0%, 15%, or 20%
- The sweet spot: Most pay just 15%
- It pays to wait: Cut your tax rate in half
Estimate your taxes with our Bitcoin Tax Calculator.
2025 long-term capital gains brackets
The long-term capital gains tax rate is 0%, 15%, or 20% based on your income.
- Single: Up to $48,350
- Married: Up to $96,700
- Single: $48,351 to $533,400
- Married: $96,701 to $600,050
- Single: Over $533,400
- Married: Over $600,050
State bitcoin tax considerations
In addition to federal tax obligations, your state could add anywhere from 0% to 13.3% more to your bitcoin tax bill.
taxed at 0%
- Alaska
- Florida
- Missouri
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
taxed the highest
- California
- Hawaii
- Maine
- Massachusetts
- Minnesota
- New Jersey
- New York
- Oregon
- Vermont
See our State-by-State Bitcoin Tax Guide for more information.
Bitcoin as ordinary income
In certain circumstances, bitcoin is taxed as ordinary income at the higher federal rates (10-37%).
When bitcoin counts as income:
- Mining rewards: Taxed at market value when received
- Staking rewards: Same as mining
- Payment for services: Just like getting paid in dollars
Key difference: No holding period benefit.
You owe taxes immediately at ordinary income rates.
See our Bitcoin Income Tax Guide for more information.
Calculating your bitcoin taxes
Understanding cost basis
What you paid for your bitcoin, plus any fees.
Simple example:
- Bought: 0.1 bitcoin for $10,000 + $100 fee
- Cost basis: $10,100
- Sell for: $15,000
- Taxable gain: $4,900
Cost basis methods
The most commonly-used ones are:
- How it works: Your oldest bitcoin sells first
- IRS default: What they assume you're using
- How it works: Choose which bitcoin to sell
- Advantage: Sell high cost basis coins
In 2026, brokers begin reporting cost basis for covered digital-asset sales. If you don't identify the lots you sold, many brokers will default to FIFO in their reporting. You can still use Specific Identification if you identify the units at or before the time of sale. Using a crypto tax service like Koinly can help you keep meticulous records, especially if you plan on using Specific Identification as your cost-basis method.
Your 1099-DA may show FIFO, but you can still report correctly on Form 8949 using Specific ID when properly documented. Consult a tax professional for more information on this.
Step-by-step calculation process
- Sales to USD
- Purchases with bitcoin
- Any value exchange
- Original purchase price
- Add fees paid
- Match to specific coins
(if using specific ID)
- Proceeds minus cost basis
- Track short vs. long-term
- Net your gains and losses
- Apply appropriate tax rates
Try our Bitcoin Tax Calculator (US) for a general estimate of your tax owing.
IRS reporting requirements
Filing bitcoin taxes requires specific forms and meticulous records.
Be sure to file your forms by the deadline to avoid penalties.
- Form 8949: Detailed transaction reporting
- Schedule D: Summary of gains/losses
- Schedule 1: Crypto income reporting
- Schedule C: For crypto businesses
- 1099-DA: What to expect in 2026
- Transaction dates and amounts
- Cost basis documentation
- Wallet addresses and exchange records
- Mining/staking income receipts
See our complete IRS Reporting Guide for more information.
Tax loss harvesting strategies
Smart investors use market downturns to reduce their tax bills.
- Current rule: No 30-day waiting period for bitcoin
- The strategy: Sell at a loss, buy back immediately
- The benefit: Keep your position while claiming losses
- The deadline: Could be gone by 2026 or 2027
- Offset all capital gains to zero
- Deduct up to $3,000 from ordinary income
- Carry forward unlimited losses to future years
- Choose high-cost lots to maximize losses
Note: Wash sale rules currently apply to stocks or securities. Digital assets are treated as property, so the statutory wash-sale rule doesn't apply to bitcoin as of now. Congress has considered extending it to crypto, but no law has passed.
See our complete Tax Loss Harvesting Guide for more information.
Frequently asked questions
This guide is for educational purposes only. Bitcoin Well is not responsible for any tax liabilities, penalties, or interest charges resulting from your use of this information. The IRS has not reviewed or endorsed this content. We make no warranties about the accuracy, completeness, or reliability of the tax information provided. Always consult with a qualified CPA, enrolled agent, or tax attorney before making tax decisions.
This content does not constitute tax, legal, or financial advice. The information provided represents our understanding of current federal tax rules as they apply to bitcoin. Tax laws change frequently and vary by individual circumstances. State and local taxes may apply differently. Your specific situation may require different treatment than described here.