On January 21, 2025, Bitcoin (BTC) broke records, reaching an all-time high of $109,993. With Ethereum (ETH) and Binance Coin (BNB) also experiencing major gains, 2025 appears to have ushered in a bull run in crypto—a sustained period of gains. While many investors are looking to capitalize on these crypto prices, the complex nature of cryptocurrency taxation remains a key element in maximizing crypto profits.
Crypto investors and participants generally face either ordinary income tax or capital gains tax on most crypto transactions, depending on the specific transaction type. Certain scenarios, such as charitable giving, may not trigger a taxable event, however, in general, strategic tax planning is vital for crypto investments. Working with a tax advisor allows crypto participants to effectively leverage strategies like tax-loss harvesting, long-term capital gains treatment, and tax-advantaged accounts to minimize their tax burden.
In this guide, we’ll cover everything you need to know about crypto taxes in the United States for 2025, including strategies to best minimize your tax liability and Form 1099-DA, the IRS’s first crypto-specific tax form.
- The crypto bull run of 2025
- The many types of crypto asset transactions
- Crypto-to-crypto transactions
- Crypto staking
- NFTs
- Airdrop and forks
- DeFi
- Crypto lending
- Crypto mining
- Gifts and donations
- Summary of crypto income and capital gains taxes in 2025
- Crypto record keeping and IRS tax reporting
- How do you calculate crypto cost basis?
- How do you complete IRS Form 1040 for Digital Assets?
- Form 1099-DA – the IRS’s first crypto-specific tax form
- Additional IRS tax forms for crypto in 2025
- Estimated quarterly taxes on crypto
- Best practices for minimizing crypto tax liabilities
- How Harness can help with crypto taxes
- Crypto tax FAQs
The crypto bull run of 2025
The cryptocurrency market appears to have entered a historic bull run in 2025, with Bitcoin leading the charge. Fueled by growing institutional adoption, resurging retail interest, and favorable regulatory shifts, the crypto surge came just ahead of Donald Trump’s inauguration, underlining the influence of political as well as economic factors on digital assets.
Bitcoin’s rapid ascent past the long-anticipated $100,000 milestone has set the stage for further gains. Forbes, for example, projects BTC could surpass $150,000 within the first half of 2025.
Regulatory developments continue to shape the cryptocurrency market, with recent initiatives aimed at providing greater clarity. In January 2025, the SEC launched a new Crypto Task Force led by Commissioner Hester Peirce, focusing on establishing clear regulatory guidelines and practical registration pathways. Meanwhile, in Europe, the MiCA (Markets in Crypto-Assets) regulation has established a clear legal framework for cryptocurrency businesses, reducing uncertainty and further increasing investor confidence.
Despite the optimistic outlook, risks remain, however. When crypto bull markets happen, they often bring high volatility and rapid price swings in their wake. The influx of new investors and speculative trading can drive prices higher but also create conditions for sharp corrections. Nevertheless, with Bitcoin gaining traction and DeFi innovations expanding, the crypto market appears poised for sustained growth in 2025, which could make it one of the most transformative years in cryptocurrency history.
The many types of crypto asset transactions
In the United States, crypto assets and cryptocurrency are categorized as property by the Internal Revenue Service (IRS) for federal income tax purposes. As such, crypto investments are subject to capital gains taxes, just like publicly traded stocks and other capital assets. Capital gains taxes are triggered by taxable events, such as buying and selling crypto assets, and receiving staking and mining rewards, all of which we’ll discuss in this guide.
Before exploring the specifics of each taxable event, it’s important to remember that capital gains are taxed in one of two ways: long or short-term capital gains, with rates adjusted based on your income.
Long-term capital gain taxes apply to assets held for more than one year before being sold, with the 2025 long-term capital gains tax rates in the US as follows:
0% rate: For single filers with taxable income up to $48,350, and for married couples filing jointly with taxable income up to $96,700.
15% rate: For single filers with taxable income between $48,351 and $533,400, and for married couples filing jointly with taxable income between $96,701 and $600,050.
20% rate: For single filers with taxable income exceeding $533,400, and for married couples filing jointly with taxable income exceeding $600,050.
Short-term capital gains taxes apply to assets held for one year or less before being sold and are taxed at your ordinary income tax rates (10% to 37%).
It’s also important to note that a 3.8% Net Investment Income Tax (NIIT) may apply to high-income earners in addition to the capital gains tax.
Crypto-to-crypto transactions
When you exchange one crypto asset or cryptocurrency for another (e.g., selling Bitcoin to purchase Ethereum), the IRS considers this a taxable event, and you’ll be subject to capital gains taxes. The concept is similar to buying and selling stocks in a taxable brokerage account. Additionally, selling a crypto asset for fiat currency, such as US Dollars, also incurs capital gains taxes.
How do you calculate capital gains on crypto?
To calculate capital gains or losses from a crypto-to-crypto transaction, you need to establish the cost basis of the original asset, which includes the amount you initially paid and any platform fees. Subtract the cost basis from the fair market value of the new asset at the time of the exchange. The resulting amount represents your capital gain or capital loss on the transaction.
Crypto staking
Crypto staking involves locking up a certain amount of crypto assets in a crypto wallet to support the operations of a blockchain, such as validating transactions or securing the network. Staking rewards, typically paid in the form of additional crypto assets, are considered taxable income and subject to ordinary income taxes at the time of receipt. Later, when the crypto assets earned from staking are sold or exchanged, the gains are subject to capital gains tax similar to other capital assets.
NFTs
Non-fungible tokens (NFTs) are unique digital assets that can be bought, sold, or traded on various platforms. When you sell or trade an NFT, the gains are subject to capital gains tax, just like other crypto assets. If you create and sell NFTs as part of a business, the income is generally treated as ordinary business income.
To learn more, explore our guide to NFT taxes.
Airdrops and Forks
Airdrops occur when a crypto platform or project distributes free crypto assets to users, often as a marketing strategy to encourage widespread adoption of a new cryptocurrency. The fair market value of the newly acquired crypto at the time of receipt is considered taxable income and must be reported to the IRS.
Forks involve changes to a blockchain and come in two forms: hard forks and soft forks.
Hard forks create a new, separate crypto asset and result in the distribution of new crypto to existing holders of the original asset. Like airdrops, the fair market value of the new tokens received in a hard fork is considered taxable income.
Soft forks represent updates or changes to the existing blockchain protocol. Soft forks don’t result in the acquisition of new crypto assets and therefore don’t have direct tax implications.
DeFi
Decentralized finance (DeFi) platforms offer various financial services, such as lending, borrowing, and trading, without intermediaries like banks. Transactions involving DeFi platforms may be subject to capital gains taxes or ordinary income taxes, depending on the transaction’s nature. In any event, it’s vital to maintain detailed records of your DeFi activities for accurate tax reporting.
To learn more, read our in-depth guide to DeFi taxes.
Crypto lending
Crypto lending allows investors to lend their cryptocurrencies to borrowers through centralized and decentralized finance (DeFi) platforms, which facilitate transactions and often provide higher interest rates than traditional lending options. Interest earned from lending is subject to ordinary income tax. As with traditional loans, borrowers do not owe taxes on the loaned amount.
Crypto mining
Crypto mining is the process of validating and adding new cryptocurrency transactions made on a blockchain network. Miners are often compensated with newly minted crypto assets (a Bitcoin reward, for example) and, in the United States, this revenue is considered taxable income. The tax rate applied to mining income depends on the individual miner’s overall taxable income and filing status. Mining rewards, as they are crypto assets themselves, will also be subject to capital gains taxes if and when they are sold or exchanged.
Gifts and donations
Crypto gifts are subject to different tax rules depending on the circumstances. If you receive a crypto asset or cryptocurrency as a gift, you generally do not need to pay taxes on it until you sell, exchange, or otherwise dispose of it. For the person giving the gift, there may be gift tax implications if the value of the gift exceeds the annual gift tax exclusion. For 2025, this exclusion is $19,000 per recipient.
Donations of crypto assets to qualified charitable organizations are typically tax-deductible. However, the IRS requires a qualified appraisal for any cryptocurrency donation exceeding $5,000 before a tax deduction can be claimed.
Summary of crypto income and capital gains taxes in 2025
The IRS’s tax guidance for digital assets is continuously evolving. Generally, if you invest or transact in crypto, expect to pay either ordinary income tax or owe capital gains tax on crypto transactions. There are specific scenarios where digital asset transactions do not trigger a taxable event.
Although the IRS’s tax guidance for digital assets is continuously evolving, in general, if you invest or transact in crypto, expect to pay either ordinary income tax or owe capital gains tax on crypto transactions.
There are specific scenarios, however, where digital asset transactions do not trigger a taxable event.
Non-taxable crypto transactions
Typically, the following crypto transactions are not taxable:
- Transferring crypto assets to yourself in another wallet
- Buying crypto with cash and holding it
- Receiving a gift in crypto
- Giving a gift in crypto of up to $19,000 in 2025
- Donating crypto to a 501(c)(3) non-profit
Crypto income tax transactions
Expect to pay ordinary income tax if you’re earning crypto through a job or another professional activity. Crypto income tax examples include:
- Employee or freelance wages paid in crypto
- Earning new tokens from liquidity mining
- Earning tokens from yield farming
- Interest earned from DeFi lending
- Selling NFTs you created
- Crypto mining earnings
- Token airdrops
Crypto capital gains tax transactions
Expect to pay capital gains tax if you’re trading or using crypto for transactions. Crypto capital gains tax examples include:
- Swapping a token for a different token on a DeFi exchange
- Spending crypto to buy goods or services
- Removing crypto from liquidity pools
- Selling or converting crypto into fiat
- Selling NFTs you bought
- Crypto margin trading
- Crypto derivatives
Crypto record keeping and IRS tax reporting
Proper recordkeeping of your crypto transactions will help you accurately complete mandatory IRS forms when filing taxes. It can be helpful to work with a crypto tax advisor to help calculate cost basis, complete IRS forms, and determine if you need to file quarterly estimated crypto taxes.
How do you calculate crypto cost basis?
Cost basis is the original value of the crypto asset at the time it was acquired. If you bought the cryptocurrency directly, the cost basis is simply the amount you paid for the crypto, including any fees or commissions.
If you bought the same cryptocurrency at different times and prices, you can choose a method for calculating the cost basis, including FIFO (first in, first out), LIFO (last in, first out), and HIFO (highest in, first out).
Cost basis may have different calculations in scenarios where you did not purchase the crypto asset directly:
Mined or earned crypto: The cost basis is the fair market value of the cryptocurrency at the time it was mined or earned.
Crypto received as payment: If you received crypto as payment for goods or services, the cost basis is its fair market value at the time of receipt.
Crypto received as a gift: If you received cryptocurrency as a gift, the cost basis depends on the giver’s cost basis, the fair market value at the time of the gift, and the fair market value of the crypto asset when you sell it. Generally, if the fair market value is more than the giver’s cost basis at the time of the gift, you use the giver’s cost basis. For digital asset gifts, it may be beneficial to consult a crypto tax advisor.
How do you complete IRS Form 1040 for Digital Assets?
For federal income tax purposes, the IRS requires all taxpayers to answer the following question by selecting “Yes” or “No” on Form 1040 regarding their involvement in digital assets:
At any time during 2025, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
Starting in the tax year 2022, the IRS began using the term “digital assets” in place of “virtual currencies” on Form 1040 and other tax forms. These terms are important to understand as you navigate tax forms.
Examples of Form 1040 Digital Asset Activities
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| Examples of crypto activities that require taxpayers to check “Yes” on Form 1040.
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Examples of crypto activities that generally allow taxpayers to check “No” on Form 1040.
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The above table is only a sample of digital asset activities from the IRS’s guidance. For complex situations, a crypto tax advisor can help navigate tax code and accurately complete IRS tax forms.
Form 1099-DA – the IRS’s first crypto-specific tax form
Form 1099-DA, officially titled “Digital Asset Proceeds From Broker Transactions,” marks a major shift in how digital asset transactions are reported to the IRS. As the first tax form specifically designed for digital assets, it’s important for investors, brokers, and anyone involved in the crypto space to understand its implications. While the IRS has released a final version of the form, some aspects of the associated regulations are still under development.
Form 1099-DA aims to standardize the reporting of digital asset transactions, including cryptocurrencies, NFTs, and stablecoins, heightening tax compliance in the crypto market. The form’s implementation, initially planned for January 1, 2025 (meaning reporting in 2026 for 2025 transactions), requires careful preparation.
A key element of Form 1099-DA is the definition of a “broker,” the entity responsible for filing the form. While the IRS has provided some guidance, the final definition remains somewhat fluid. Proposed regulations and draft versions of the form have offered insights, but uncertainties remain. Initially, the IRS considered various entities as potential brokers, including exchanges (centralized and decentralized), payment processors, and even certain wallet providers. However, the final scope of “broker” and which specific entities will be required to file is still subject to change.
Irrespective, Form 1099-DA stems from the Infrastructure Investment and Jobs Act (IIJA) of 2021 and aims to bring greater clarity and compliance to the reporting of crypto transactions to the IRS. This increased scrutiny underlines the importance of accurate record-keeping for all crypto transactions.
Additional IRS tax forms for crypto in 2025
The following is a breakdown of the further forms required for crypto reporting in 2025 (keeping in mind that IRS guidance can change):
Schedule 1 (Form 1040): Reports all crypto-related income, including capital gains/losses, on Schedule 1. This includes proceeds from sales, mining/staking rewards, airdrops, and other taxable crypto transactions.
Form 1099-B: Your crypto brokerage may issue Form 1099-B summarizing your transactions—with issuance depending on the broker and transaction type. Some exchanges may also issue Form 1099-K, though these requirements are subject to change.
Form 8949 and Schedule D: Capital gains and losses from crypto transactions should be reported on Form 8949, transferring the totals to Schedule D. You will need to provide details for each transaction (date acquired, date sold, cost basis, proceeds).
Schedule C (If Applicable): If you operate a crypto business (e.g., mining, trading), report income and expenses on Schedule C. You should calculate net profit/loss, then report the figures on Form 1040 and Schedule 1. Include all relevant income, deductions, and expenses.
Form 8300 (for businesses): While the Infrastructure Investment and Jobs Act amended IRC 6050I to include digital assets, the IRS has delayed the reporting requirement for digital assets on Form 8300 until regulations are issued. Currently, Form 8300 reporting is only required for cash transactions over $10,000.
Form 1040 Digital Asset Question: Form 1040 includes a question about digital asset activity. The specific wording and reporting requirements are subject to change, so refer to the most recent Form 1040 instructions.
Estimated quarterly taxes on crypto
The IRS may require some taxpayers to pay estimated quarterly taxes on their income, including income from crypto transactions. This applies to individuals who expect to owe at least $1,000 in taxes when filing their return or if their withholding and refundable credits will not cover at least 90% of the tax owed for the current year.
If you expect to owe a substantial amount in crypto taxes, it’s important to plan for your quarterly tax obligations to avoid potential penalties. Calculate your estimated quarterly tax payments using Form 1040-ES, or submit payment on the IRS website.
Best practices for minimizing crypto tax liabilities
Several strategies can help you minimize your crypto tax bill, leverage tax benefits allowed by the IRS, and ensure you stay in compliance with the IRS. These strategies include:
Holding onto your crypto investments for more than one year: By holding onto your crypto investments for more than a year, you will be able to benefit from a long-term capital gains tax rate, which is generally lower than the short-term rate.
Making use of tax-loss harvesting: Tax-loss harvesting is a strategy that involves selling crypto assets that have experienced a loss in value to offset capital gains from other assets. Strategically selling these underperforming assets allows you to potentially reduce your overall tax liability.
Planning for estimated quarterly tax payments: As mentioned, some taxpayers may be required to pay estimated quarterly taxes on their crypto-related income. If you expect to owe a significant amount in crypto taxes, it’s important to understand and plan for your quarterly tax obligations to avoid potential penalties.
Using tax-advantaged accounts: Consider investing in crypto in tax-advantaged accounts, such as IRAs or 401(k)s. Moving digital assets into a tax-advantaged account may create a tax benefit by deferring or minimizing taxes on capital gains and income. It should be noted, however, that not all IRA and 401k providers allow this crypto strategy, and it’s advisable to seek a provider that does allow it—Alto IRA, for example.
Consulting a tax professional: Crypto tax laws are not only complex but subject to continual change. It’s wise to consult with a crypto tax advisor or other tax professional who is knowledgeable about crypto taxation to make sure you comply with the latest regulations and take advantage of any potential deductions or credits.
How Harness can help with crypto taxes
While crypto trading may be potentially highly profitable in the coming year, the taxation reporting requirements that come with crypto transactions can be challenging. It’s advisable, therefore, to have a tax advisor in your corner who understands the crypto arena in depth.
At Harness, we can help you find specialist tax advisors who understand the complexities of crypto and are committed to addressing your specific needs. If you require assistance with crypto taxes or want to learn more about our full range of services, register for Harness and start working with an experienced crypto-focused tax advisor today.
Crypto taxes FAQs
Below are answers to the most frequently asked questions about crypto taxes
Do you have to report crypto under $600?
You are required to pay taxes on all profits from crypto transactions, regardless of the amount. While some reporting requirements for exchanges may involve thresholds like $600, your personal tax liability is based on your overall gains and losses.
What happens if I don’t report crypto taxes?
Failure to report crypto transactions can lead to fines and penalties, including potential criminal charges in severe cases. Additionally, failure to report capital losses can lead to missed deductions which can lower your tax bill. If you realize that you missed reporting crypto transactions in the past, it’s safest to file an amended tax return.
Do you get a 1099 for crypto?
You may receive an IRS Form 1099 for your crypto transactions, depending on the nature of your transactions and the platforms you use. There are different 1099 forms you may encounter in crypto, including 1099-B, 1099-K, 1099-MISC, and potentially 1099-DA in the future. Remember, whether you receive a 1099 form or not, you’re responsible for reporting all taxable crypto transactions on your tax return.
Do I have to report crypto if I didn’t sell it?
If you purchase a crypto asset, you generally do not have a taxable event until you sell, exchange, or use it. However, if you receive crypto from activities such as mining, staking, or lending, it is considered taxable income at the time of receipt, even if you don’t sell it immediately.
What is a bull run in crypto?
A bull run in crypto—much like bull runs in any other financial asset—refers to a sustained period of rising prices in the market. Bull runs are characterized by investor optimism, increased trading volume, and significant price appreciation for many cryptocurrencies. Bull runs can last weeks, months, or even years. Several factors can trigger a bull run, including increased adoption, technological advancements, positive regulatory news, and overall market sentiment. While potentially lucrative, bull runs are also often followed by market corrections or bear markets, where prices decline. Investing during a bull run requires careful consideration and risk management.
What are crypto derivatives?
Crypto derivatives are financial contracts whose value is derived from an underlying cryptocurrency, like Bitcoin or Ethereum. Crypto derivatives allow traders to speculate on the future price movements of these assets without actually owning them. Common types include futures (agreements to buy or sell at a set price and date), options (giving the right, but not obligation, to buy or sell), and perpetual swaps (similar to futures but without an expiration date). Derivatives can be used for hedging, speculation, or leverage, amplifying both potential gains and losses. While Crypto derivatives offer sophisticated trading opportunities, they also carry significant risk, particularly due to the volatility of the crypto market.
What are bull and bear markets?
Bull and bear markets describe the overall trend of asset prices in a market, like the cryptocurrency market. A bull market is a period of sustained price increases and investor optimism, often featuring major bull runs. A bear market is the opposite, characterized by declining prices and widespread pessimism. While past performance, including major bull runs, can offer insights, it doesn’t guarantee the timing or magnitude of the next bull market.
What is HODLing in crypto?
“HODLing” is a long-term holding strategy in crypto. HODLers typically resist the urge to sell their crypto assets, even during price drops, believing in the long-term potential of their investments. While HODLing is a popular crypto market strategy, it’s important to note that HODLing doesn’t guarantee profits, as crypto prices have historically tended to be volatile.
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