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Do I Need to Report My Crypto Activity?
Have you ever come across a post on the internet that claims you don’t need to tell anyone about your crypto activity if you’ve only had losses? I’ve seen that a few times, and it’s dead wrong. In question 42 of the IRS’ digital asset FAQ page, they state ‘you must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transactions, regardless of the amount or whether you receive a payee statement or information return.’ In layman’s terms, if you have any proceeds, any gains or losses, or any income from your crypto activity you are required to report your activity.
You report your crypto activity in two parts: Form 8949 for gains and losses, and Form 1040 for the income. Many people find crypto taxes confusing because they can get pretty complicated. But you can make it easier by keeping your dataset simple. If your transactions mainly involve DeFi trades in one transaction, such as uniswap trade,, regular exchange activities, and moving your own crypto around, your tax reporting won’t be too tough. If you start getting really involved in DeFi, just make sure to keep good records of what you do. Your future self will thank you!
How can I avoid crypto taxes?
Here are two ways to avoid crypto taxes:
- Limit Your Activity: You can reduce your tax complexity by sticking to simple activities like buying crypto with regular money (fiat purchases) and transferring your crypto between your own accounts (self-transfers).
- Stay Out of Crypto: If you don’t want to deal with crypto taxes at all, you can choose not to participate in the cryptocurrency world.
If these options don’t suit you, it’s important to educate yourself about crypto taxes, understand your yearly obligations, and develop a sound strategy for handling your tax responsibilities before diving deep into the world of cryptocurrency. Trying to sort out taxes a year or more after becoming involved can be quite challenging.
If you’ve simplified your crypto activity but still find tax-related issues, don’t hesitate to reach out for help. A crypto reconciliation for straightforward datasets typically costs between $1,000 and $2,000 and can cover multiple years at the same price if your data is uncomplicated. This will ensure your financial gains are accurately accounted for and keep your dataset audit-ready. If the annual crypto tax process becomes overwhelming, you can always consider exiting the crypto space.
