Studies estimate that a vast majority of cryptocurrency investors, potentially over 95% in some reports, do not fully report their crypto transactions to the IRS, with compliance rates appearing very low despite rising adoption. While 12% to 21% of U.S. adults have owned crypto, IRS data shows only a small fraction (roughly 6.5% or less in some years) report these transactions.
For example, the research argues that only 1.62% of crypto investors in the United States paid taxes.
In fact, the IRS has been prosecuting crypto tax evasion since the first case in 2024. The case of Frank Richard Ahlgren III, who was charged with underreporting or failing to report $4 million in Bitcoin sales, resulted in a 2-year prison sentence and an order to pay $1 million+ in restitution.
Neglecting NFT and DeFi Income Reporting: Income from NFT sales and DeFi activities such as yield farming, lending, and staking is taxable and closely monitored. Inconsistent Cost Basis or Missing Records: Poor or missing documentation of crypto transactions can lead to audits.
But the chances of being audited are actually very low for most individuals. Recent IRS data shows the IRS examined 0.40% of individual returns filed and 0.66% of corporation returns filed. Most of the IRS's focus is on large businesses and high-income earners.
Donating crypto to a qualified charity may be tax deductible. Using crypto as collateral for a loan is generally tax-free since no sale occurs. Some states and countries offer reduced or zero taxes on crypto income and capital gains. Accurate records help you avoid penalties and ensure correct tax reporting.
The 1% rule in crypto trading is a risk management strategy where you never risk more than 1% of your total trading capital on a single trade, calculated by setting a stop-loss to limit potential losses, helping protect your overall portfolio from significant damage and reducing emotional trading. For example, with a $10,000 account, your maximum loss on any trade is $100, achieved by adjusting your position size based on where you set your stop-loss.
Report: Tom Brady lost $30M in collapse of crypto giant FTX. Tom Brady lost millions in the collapse of cryptocurrency company FTX, for which he served as an "ambassador," The New York Times reported Friday.
Strategies to consider for reducing crypto taxes
You can potentially minimize your crypto tax liability in several ways, including: Hold it long-term to get a lower tax rate. Holding crypto for more than one year allows you to qualify for lower long-term capital gains tax rates.
Cryptocurrencies are traceable, with transactions recorded on a public ledger accessible to the IRS. The IRS uses advanced methods to track crypto transactions and enforce tax compliance. Centralized exchanges provide user data to the IRS.
If you don't and the IRS learns that you sold some cryptocurrency, they'll assume you have taxable income and send you a letter or notice asking you to pay taxes on those “gains.” The IRS will assume you have taxable gains because they may not be aware of your cost basis for the cryptocurrency.
Capital gains tax on $300,000 depends on your filing status and total income, but for most, it will be taxed at the 15% federal rate, meaning around $45,000 in tax, potentially rising to 20% if your total income is very high, and you'll also need to account for state taxes and potentially a 3.8% Medicare surtax. A $300,000 gain usually falls into the 15% bracket for single filers (above $48,350) and married filing jointly (above $96,700), while for married filing separately, it hits the 20% bracket (over $300,000).
Key Takeaways. The IRS treats cryptocurrency as property, meaning that when you buy, sell or exchange it, this counts as a taxable event and typically results in either a capital gain or loss. When you earn income from cryptocurrency activities, this is taxed as ordinary income.
also holds a substantial Bitcoin portfolio, with 11,509 BTC, valued at over $1.27 billion.
A programmer named Laszlo Hanyecz famously bought two pizzas with 10,000 Bitcoin on May 22, 2010, marking the first real-world commercial use of the cryptocurrency, an event celebrated as "Bitcoin Pizza Day". At the time, the Bitcoins were worth only about $41, but today that same amount is worth over $1 billion, making it arguably the most expensive pizza ever bought. Hanyecz sees it as a successful experiment to show Bitcoin's utility, and he has expressed no regrets, finding it "pretty cool" that it helped establish Bitcoin as a currency.
$Trump (stylized in all caps) is a meme coin associated with United States president Donald Trump, hosted on the Solana blockchain platform.
The 3 5 7 rule is a risk management strategy in trading built around three core principles: Risk no more than 3% of your capital on a single trade. Limit exposure to 5% of capital across all open positions. Target around 7% profit or maintain a reward objective aligned with that level.
Centralized exchanges like Coinbase, Binance, and Kraken are the easiest way to cash out cryptocurrency. These exchanges allow you to sell your crypto for fiat — then transfer the funds to your bank account!
Hold investments for at least one year and a day before selling. Long-term capital gains are taxed at lower rates than short-term capital gains. Consider crypto tax-loss harvesting. That means offsetting your crypto losses against crypto gains or other capital gains to help reduce your tax bill.
The "crypto 30-day rule" refers to the IRS wash-sale rule, which does not apply to cryptocurrencies, treating them as property, not securities, allowing investors to sell at a loss and immediately buy back the same crypto to realize the loss for tax purposes (tax-loss harvesting) without waiting 30 days, unlike stocks. However, some tax authorities (like the UK's HMRC and Lanop or local interpretations) may have their own "bed and breakfast" rules that match sales and purchases within 30 days, affecting capital gains, so it's crucial to check specific tax jurisdictions.