Do you pay tax on your crypto gains? It is hard to believe that it’s been about 15 years since trading in bitcoin began. Crypto has exploded since then, with coins coming and going, not always quietly. IRS guidance from 2014 (Notice 2014-21) says crypto is property, not currency. That means most transfers trigger taxes.
You might be using it to pay for a new car, a cup of coffee or paying someone for services, either as an independent contractor or as an employee. But no matter what the transaction, you may have a gain or a loss. Whatever type or amount of crypto you use, the IRS will say you paid them the current market value of the crypto on that day.
When you pay an independent contractor and issue a Form 1099, you can’t enter a number of bitcoin on the form. You must put the value in U.S. dollars as of the time of payment. The contractor you pay might keep the crypto, or might sell it the same day, but that doesn’t impact your taxes.
The U.S. Treasury Department has proposed new rules to make it harder for people not to pay tax on their gains when they sell or trade crypto. Starting in 2026 for the 2025 tax year, crypto exchanges are required to report to the IRS and taxpayers in much the way brokerage firms now handle stock trades. The basic idea is that the crypto exchanges will send you and the IRS a Form 1099 keyed to your Social Security Number each year, reporting the total gross proceeds generated on your sales.
You already get Form 1099 for many kinds of payments. They usually show up in your mailbox around Jan. 31, for the prior year. And if you receive a Form 1099 but don’t put it on your tax return, it usually means that you’ll get a tax bill from the IRS asking for their cut.
The new reporting rules are not reporting your gain, mind you, but the gross amount in dollars your transactions represent. If you held your crypto for over a year to get long term capital gain treatment on your gains, the IRS tax rate is up to 23.8%. In contrast, if your gain is ordinary, the tax hit is up to 37%. Depending on where you live, you need to consider state taxes too.
But how about your tax basis, who keeps track of that? The answer is that you have to. But the IRS and Treasury Department are thinking about this too. In addition to reporting gross proceeds starting in January 2026 for 2025 sales, the crypto exchanges will also have to start reporting your purchase price too—your basis. That will make it even easier for the IRS to send you a tax bill if you forget to report your gain yourself.
The new basis reporting kicks in early in 2027, when reporting sales made in 2026. But the rules would reach back only to crypto purchased in 2023 or later. But still, you can probably assume that there will be lots of zero basis reporting as these rules take effect.
Is all this shocking? Hardly. The IRS has been after crypto for a long while now, even before 2014. But the IRS has had a hard time coming out with guidance, a hard time training its personnel how to audit crypto, and what to do with questionable cases.
What if neither you nor your exchange know your tax basis? Maybe you bought your crypto long ago, and just don’t know. Maybe it was a gift from your uncle Joe, but you don’t know what he paid for it. Under IRS tax rules, when you receive property by gift, you take a carryover basis, meaning the basis that the giver of the property had.
That way, if the person who made the gift has a low basis, you do too—which will yield a bigger tax bite on your gain when you sell it. If your exchange doesn’t know your basis, they will likely say zero basis. And that is the IRS rule too. If you can’t prove your basis to the IRS, the IRS will assume that your basis is zero.
