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For those who earn crypto or invest in the crypto market, you’ll have to fill out—and send—the requisite paperwork to the Internal Revenue Service (IRS) in order to be in compliance. There aren’t crypto-specific forms per se, but you’ll need to fill out both your crypto income and investments on forms that are likely already familiar to you.
If you’re familiar with how your stock market portfolio is taxed based on capital gains tax rates, some of this information is likely already familiar to you. Let’s run down the tax paperwork basics so you can dot your “i”s, cross your “t”s, and add four dashes to your “B”—to get ₿. We’ll cover crypto tax paperwork as it relates to both individuals and business entities.
Form 1040 Schedule D, C, and SE
This is the standard form nearly every U.S. citizen must file every year. On Form 1040, there is a line where you should report your total crypto gains and losses. If you have any amount of crypto, you are expected to disclose it on this form.
The 1040 Schedule D lists both your short-term and long-term capital gains and losses. If you’ve harvested losses from previous years, you also include those losses on this form. If you are a partner in a financial entity or a shareholder in an S Corporation, the Schedule D would also include gains and losses from these entities (as filed on your Schedule K-1 documentation).
On Form 1040, crypto income is filed as “Additional Income and Adjustments to Income.” Separate from investments, crypto income would include receiving a salary in crypto, crypto mining and staking rewards, crypto received from an airdrop or hard fork, and various other processes. In general, any crypto acquired that you didn’t purchase is classified as taxable income—not an investment.
For crypto mining rewards, it may depend on if you’ve been mining as a hobby or if it is a full-fledged business. If the mining operation is classified as a business and your income exceeds your expenses, you would likely owe self-employment taxes as well. If done as a sole proprietor, you would have to fill out a Schedule C on your 1040. You can use the Schedule SE on your 1040 to calculate the self-employment taxes you would owe.
You list both your profitable and unprofitable crypto sales on Form 8949. To be compliant, you will have to fill out both a 1040 and 8949 to include with your tax return. For those that have lost their crypto through a scam or hack, these losses can be treated as $0.00 proceeds transactions on Form 8949. This will allow you to claim losses that can be used to offset any capital gains taxes you may have to pay.
Individuals, partnerships, and other entities can report non-cash crypto contributions to charity when the deduction amount is more than $500 USD. Filed on Form 8283, this is a tax-deductible donation that can be used to lower your total tax bill.
Many of the forms above are for employed and self-employed individuals. For certain businesses, your crypto profits and associated tax liabilities may need to be filled out on forms that are for business entities (and may also need to be noted on your personal tax forms as well). For example, a professional crypto miner could calculate their expenses on a 1040 Schedule C. They may also have the option—or be required—to input their crypto mining operations on a business specific form such as a 1120S, 1120, or 1065.
If you’re filing a 1040 Schedule C, you could also file a Form 8829 to note expenses for the business use of your home. For example, you could claim expenses for a crypto mining operation done within your primary residence.
Crypto tax forms and paperwork
While a comprehensive tax document overview would be a tome that could take you days to read, this short primer should help those that want to know the basics of crypto-related tax filing paperwork. If you’re already well versed in filling out 8949s and 1040s, you may choose the self-file route. You’ll simply have to add your crypto income and/or investments to any other income or investments.
If this is all new to you, you may want to look into using a crypto tax software such as Crypto Tax Calculator that can provide you with pre-filled IRS forms using your crypto transaction data.
Another great option is to hire a crypto-knowledgeable certified public accountant (CPA) that can file your taxes on your behalf. While this is likely the most expensive option, you won’t have to personally deal with the minutiae—and headaches—of filing your own taxes.
- All your crypto income and investments should be noted on your annual tax returns.
- For individuals, the two primary tax forms for crypto are the 1040 and the 8949. The 8949 should list all your crypto buys, trades, and sales.
- Crypto-related businesses (like institutional crypto mining operations) will have to fill out business-specific forms related to their profits and losses.
- You should consider hiring a crypto-knowledgeable CPA if you are feeling uncertain or hesitant about filing your taxes on your own.
This crypto tax series is merely for informational purposes and should not be considered legal or tax advice. Please solicit the services of a crypto knowledgeable certified public accountant, tax professional, or lawyer should you need further guidance.