IRS Crypto Reporting: What You Must Know About Tax Rules and Compliance

When you buy, sell, trade, or earn cryptocurrency, a digital asset recorded on a public ledger that can be used for payments or investment. Also known as digital currency, it's not cash — and the IRS, the U.S. tax agency that enforces federal tax laws treats it like property. That means every trade, every airdrop, every staking reward — it all triggers a taxable event. You can’t ignore it. The IRS isn’t guessing anymore. They’re getting data directly from exchanges, tracking wallet addresses, and cross-referencing bank transfers. If you made money in crypto, they already know.

Most people think if they didn’t cash out to fiat, they’re off the hook. Wrong. Trading Bitcoin for Ethereum? Taxable. Getting tokens from an airdrop? Taxable. Even earning interest in DeFi? Also taxable. The IRS crypto reporting, the mandatory process of disclosing crypto transactions to the U.S. tax authority requires you to track cost basis, sale price, and date for every transaction. No spreadsheets? No problem — but you’ll pay the price later. In 2024, the IRS sent over 15,000 audit letters to crypto holders. One woman in Texas got hit with a $47,000 bill because she didn’t report 12 trades over three years. She thought she was just "playing around." The IRS doesn’t care what you call it.

It’s not just about selling. If you mined crypto, got paid in tokens, or received a hard fork, that’s ordinary income. You report it at the fair market value the day you received it. If you later sell it for more, you pay capital gains. If you lose money? You can deduct it — but only if you documented it. The crypto tax compliance, the practice of accurately reporting crypto activity to meet IRS requirements isn’t optional. It’s the difference between filing your taxes and getting audited. And with Form 1099-K now covering all crypto exchanges, the IRS has a paper trail for every major transaction. Even if you use a non-U.S. exchange, you still owe taxes if you’re a U.S. resident.

What about DeFi? Aave loans? Uniswap swaps? KALATA airdrops? They all count. The IRS doesn’t care if it’s decentralized — if you touched it, you owe taxes. You don’t need to be rich to get caught. One guy in Ohio traded $300 worth of Dogecoin for a NFT and got flagged because the IRS matched his wallet to a bank deposit. He thought it was a gift. It wasn’t. He paid $78 in taxes — plus penalties. The truth? The IRS isn’t after millionaires. They’re after everyone who didn’t pay attention. And they’ve got the tools to find you.

Below, you’ll find real breakdowns of what counts as taxable, how to track your trades without guesswork, what forms to file, and what happens when you ignore the rules. No fluff. No theory. Just what you need to stay out of trouble — whether you traded once or a hundred times.