Form 8949 is required for every crypto sale, trade, or disposal in 2025. The IRS now mandates wallet-by-wallet accounting and Form 1099-DA reporting. Learn what to report, how to track it, and how to avoid penalties.
IRS Cryptocurrency: What You Need to Know About Tax Rules and Compliance
When you buy, sell, or trade cryptocurrency, a digital asset that the IRS classifies as property, not currency. Also known as crypto, it’s subject to capital gains rules just like stocks or real estate. This isn’t optional — if you’ve ever sold Bitcoin, earned rewards from staking, or received an airdrop, you’ve triggered a taxable event. The IRS doesn’t care if you used Coinbase, Binance, or a decentralized exchange. They track it through bank deposits, exchange reports, and blockchain analysis.
Many people think if they didn’t cash out to fiat, they don’t owe taxes. That’s wrong. Trading Ethereum for Solana? Taxable. Getting free tokens from a project? Taxable as income at fair market value the day you received them. Even using crypto to buy a coffee counts — you’re selling an asset, so you owe tax on the gain since you bought it. The IRS crypto audit, a targeted review of crypto transaction records. Also known as crypto tax investigation, is becoming more common as exchanges now send 1099 forms to the IRS. If you ignored crypto taxes in past years, the IRS has tools to find you — and penalties can be steep.
Keeping records isn’t just smart — it’s required. You need dates, amounts, transaction IDs, and the USD value at time of each trade. Tools like Koinly or CoinTracker help, but you’re still responsible for accuracy. Don’t rely on exchange summaries — they often miss transfers between wallets or DeFi rewards. If you mined crypto, that’s ordinary income. If you lost coins to a hack or scam, you might claim a loss — but only if you can prove it. The crypto income, any crypto received as payment for goods, services, or rewards. Also known as crypto earnings, is taxed at your regular income rate, not capital gains. That’s why a $500 airdrop can land you in a higher tax bracket.
There’s no gray area here. The IRS has been clear since 2014: crypto is property. Every movement has tax consequences. You don’t need to be rich to owe taxes — even a $20 profit on a Dogecoin trade counts. What you’ll find below are real examples of how people got caught, what the IRS looks for, how to fix past mistakes, and what to do if you’re just starting out. No fluff. No theory. Just what actually matters when the tax man comes knocking.