The IRS requires all taxpayers to report cryptocurrency and other digital asset transactions when filing their tax returns. Whether you sold crypto, received it as payment, or engaged in other digital asset activities, accurate reporting is mandatory.
Key Reporting Requirements for Digital Assets
The digital asset question appears at the top of several tax forms, including:
- Form 1040 (Individual Income Tax Return)
- Form 1040-SR (U.S. Tax Return for Seniors)
- Form 1040-NR (U.S. Nonresident Alien Income Tax Return)
- Form 1065 (U.S. Return of Partnership Income)
- Form 1120 (U.S. Corporation Income Tax Return)
The revised question for 2023 asks:
"At any time during 2023, 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?"
What Qualifies as a Digital Asset?
Digital assets include:
- Cryptocurrencies (Bitcoin, Ethereum, etc.)
- Stablecoins
- Non-fungible tokens (NFTs)
- Any digital representation of value recorded on a blockchain
These are treated as property for tax purposes, meaning standard property tax rules apply.
How to Answer the Digital Asset Question
When to Check "Yes"
Check "Yes" if you:
- Received crypto as payment for goods/services
- Earned crypto through mining, staking, or rewards
- Exchanged one digital asset for another
- Sold cryptocurrency
- Received assets from a hard fork
- Gifted digital assets (may require Form 709)
👉 Learn more about crypto tax compliance
When to Check "No"
Check "No" if you only:
- Held crypto in your wallet
- Transferred between your own accounts
- Purchased crypto with fiat currency
Reporting Digital Asset Income
All taxable income from digital assets must be reported:
- Capital gains/losses: Use Form 8949 and Schedule D
- Business income: Report on Schedule C if you sold crypto as part of a business
- Wages: Employees paid in crypto must report fair market value as income
- Mining/staking rewards: Treated as ordinary income at receipt
Failure to report can result in penalties and interest charges.
Frequently Asked Questions
Do I need to report if I only bought crypto?
No, simply purchasing cryptocurrency doesn't require checking "Yes" unless you engaged in other reportable transactions.
How are NFTs taxed?
NFTs follow the same rules as other digital assets. Sales may trigger capital gains taxes, while creating/selling NFTs may generate ordinary income.
👉 NFT tax guide for creators and collectors
What if I lost money on crypto investments?
You can report capital losses on Form 8949, which may offset other capital gains or up to $3,000 of ordinary income.
Where can I find my crypto transaction history?
Most exchanges provide tax documents or CSV exports. Consider using crypto tax software to aggregate data across platforms.
Are airdrops taxable?
Yes, airdrops are generally taxable as ordinary income at their fair market value when received.
Recordkeeping Best Practices
Maintain detailed records of all digital asset transactions including:
- Dates of transactions
- Fair market value in USD at time of transaction
- Recipient/sender information
- Purpose of transaction
Proper documentation helps ensure accurate reporting and simplifies responding to IRS inquiries.