When you sell, trade, or spend cryptocurrency capital gains, the profit you make from selling digital assets like Bitcoin or Ethereum after buying them at a lower price. Also known as crypto profits, it’s treated like selling stocks or real estate by tax authorities—except the IRS and other agencies track every move. If you bought Bitcoin for $5,000 and sold it for $12,000, that $7,000 isn’t just a win—it’s taxable income. And if you used that Bitcoin to buy a laptop, a NFT, or even another crypto, that’s still a taxable event. There’s no such thing as a "free" trade in the eyes of the law.
Most people think they’re safe if they don’t cash out to fiat. That’s wrong. Every swap—Ethereum for Solana, Dogecoin for a meme token, even trading one stablecoin for another—triggers a capital gain or loss. The IRS crypto reporting, the system used by the U.S. Internal Revenue Service to track cryptocurrency transactions through exchanges and wallet analytics now matches data from Coinbase, Kraken, and even DeFi platforms. If you traded on Uniswap or PartySwap and made a profit, they know. And if you didn’t report it, you’re risking crypto tax evasion, the illegal act of hiding crypto profits from tax authorities, which can lead to criminal charges. The penalties aren’t theoretical. In 2024, the IRS sent out 15,000 letters to people who didn’t report crypto gains. One man in Texas got fined $250,000 and spent five years in prison for unreported trades.
It’s not just the U.S. India charges 30% on every crypto profit, with 1% withheld at the source. Norway doesn’t tax mining profits—but it’s shutting down new mining farms because the energy use affects local industries. And in Egypt, people use crypto to escape inflation, but crossing borders with digital assets can land you in jail. The rules change by country, but the core truth doesn’t: if you made money from crypto, you owe taxes. You can’t ignore it. You can’t hide it. And you definitely can’t rely on airdrops like CORA, ASK, or BUNI to be tax-free—those tokens have value the moment you claim them, and that value is taxable.
What you’ll find here are real cases, real rules, and real consequences. No theory. No guesswork. Just what actually happened to people who thought they could slip through the cracks—and what you need to do to stay out of trouble.
Form 8949 is the IRS form you must use to report every crypto trade, sale, or disposal. Starting in 2025, new rules require wallet-by-wallet accounting and detailed records. Here’s how to file correctly and avoid penalties.