ARE CRYPTO-TO-CRYPTO TRADES TAXED?

Last updated: June 19, 2025, 22:43 | Written by: Charlie Shrem

Navigating the world of cryptocurrency can feel like charting unknown waters, especially when it comes to taxes. In rare cases, HMRC may consider your crypto derivative activity to be a trade. This typically applies if you are trading frequently, at high volume, and to generate income. If your activity meets the badges of trade criteria, your profits will be taxed as trading income under Income Tax rules. This means:With the rise of digital assets, a common question arises: Are crypto-to-crypto trades taxed? The short answer is a resounding yes. Forms Required for Crypto Tax Reporting. Specific forms are required for crypto tax reporting to ensure compliance. Form 8949 and Schedule D are essential for tracking capital gains and losses from cryptocurrency transactions. Additionally, Form B is needed for reporting trades of crypto assets made through an exchange.In the eyes of the IRS and other tax authorities like HMRC, exchanging one cryptocurrency for another is a taxable event, just like selling crypto for fiat currency (like USD) or using it to purchase goods or services. Crypto-to-crypto transactions and crypto to fiat (i.e. AUD) trades are subject to capital gains taxes. When you sell or exchange a crypto asset, you subtract the cost basis (amount you originally paid for the crypto) from the proceeds (sales price total) to calculate your crypto gain or loss from that trade.This means that in 2025, crypto is taxed much like stocks or real estate, triggering capital gains or losses whenever you dispose of your crypto assets, including trading. Filing Crypto Leverage Trading Taxes When engaging in crypto leverage trading, it s crucial to understand the tax implications and the necessary forms required for a compliant tax return. Proper record-keeping is a cornerstone to accurately reporting crypto trades and avoiding penalties. Essential Tax Forms for Crypto TradersUnderstanding the nuances of these regulations is crucial for crypto investors to remain compliant and avoid potential penalties.

This article dives deep into the intricacies of crypto taxes, focusing specifically on crypto-to-crypto trades. This is the reason why many crypto investors and their accountants consider crypto tax software to be an essential tool. Accurately calculate your crypto taxes using crypto tax software. Crypto tax software is the fastest and most reliable way to calculate your crypto taxes and generate your crypto tax reports automatically.We'll explore how these trades are taxed, how to calculate your gains and losses, and what steps you can take to ensure accurate reporting.Furthermore, we'll discuss helpful strategies for managing your crypto taxes, including leveraging specialized crypto tax software. Although he paid back taxes, penalties, and interest, he avoided criminal charges by demonstrating that the errors were unintentional. He also implemented crypto tax software to track future transactions. Key Takeaway: Properly tracking crypto trades and using tax software can prevent costly mistakes. Working with professionals to addressBy the end of this guide, you'll have a clear understanding of your crypto tax obligations and the tools you need to navigate the complex world of digital asset taxation.

The Taxable Nature of Crypto-to-Crypto Exchanges

The core principle to understand is that the IRS, along with other international tax agencies, views cryptocurrency as property, not currency. If the same trade occurred a year or more after the crypto purchase, you'd owe long-term capital gains taxes. Depending on your overall taxable income, that would be 0%, 15%, or 20%.This seemingly simple distinction has significant implications for taxation. This move from Ethereum to DOGE is a trade - and a taxable event. Tax Rules for Crypto Trades. HMRC gives clear guidance on crypto to crypto trades. A trade means you've sold one asset at fair market value to acquire another. Let's revisit Sarah's case: Day 1: Buys 5 ETH for 500, making each ETH 100. Two weeks later: Sarah trades 0.5 ETHEvery time you ""dispose"" of your crypto, whether by selling it for fiat, using it to buy a product, or – crucially – trading it for another cryptocurrency, you are potentially triggering a taxable event. While crypto taxes might seem confusing at first, this crypto taxes beginner guide can help make things less complicated. The basics help you avoid mistakes. Every trade and sale needs to be tracked. Compliance and minimal stress during tax season can be guaranteed by staying organized. Continue reading with this crypto taxes beginner guide.This means that you're essentially selling the first crypto for its fair market value in USD and then immediately using those USD to purchase the second crypto.Let's break this down with an example:

Imagine you bought 1 Ethereum (ETH) for $500.Several months later, the value of ETH rises to $1,500. Getting paid in crypto: If you were paid in crypto by an employer, your crypto will be taxed as compensation according to your income tax bracket. Getting crypto in exchange for goods or services: If you accept crypto in payment for a good or service, you re responsible for reporting it as income to the IRS.You then trade your 1 ETH for $1,500 worth of Dogecoin (DOGE).This trade is a taxable event.You've made a capital gain of $1,000 ($1,500 selling price minus $500 cost basis). Regulatory updates: Keeping businesses informed about new IRS crypto tax rules. With expert guidance, My Count Solutions helps businesses and individuals navigate complex crypto tax requirements, ensuring compliance and minimizing tax liabilities. Understanding and complying with crypto tax laws in 2025 is crucial for avoiding IRS penaltiesYou will need to report this $1,000 gain on your tax return.

Why are Crypto Trades Taxed?

The reason crypto-to-crypto trades are taxed stems from the IRS's classification of crypto as property.Just as selling a stock or a piece of real estate triggers capital gains taxes, so does exchanging one form of cryptocurrency for another. ZenLedger: Integrates with exchanges to simplify tax filing. FAQs About Crypto Taxes 1. Do I owe taxes if I don t sell my crypto? No, you don t owe taxes simply for holding cryptocurrency. Taxes apply only when you sell, trade, or use crypto in a taxable event. 2. What happens if I don t report my crypto transactions?Each transaction is treated as a separate sale and purchase, requiring you to calculate and report the gain or loss on the crypto you traded away.

Calculating Capital Gains and Losses from Crypto Trades

Accurately calculating your capital gains and losses is crucial for proper tax reporting.This involves meticulously tracking your cost basis, the fair market value (FMV) of the crypto at the time of the trade, and the resulting USD gain or loss. This is why it s crucial to get your crypto taxes in order. April 15: Deadline to file your crypto tax return and pay taxes for the previous calendar year (January to December). This includes taxes on crypto gains, income, and other sources from the prior year. October 15: Extended deadline to file your tax return if you requested anThis can be a daunting task, especially for active traders with numerous transactions.

Understanding Cost Basis

The cost basis is the original price you paid for a cryptocurrency, including any fees associated with the purchase. Why reporting your crypto taxes can be difficult. As you can see from the examples above, calculating your capital gains and losses from your crypto trading activity requires keeping track of your cost basis, fair market value, and USD gain or loss every time you dispose of a crypto (trade, sell, spend, etc).It's the foundation for calculating your capital gains or losses.If you acquired the crypto through mining or staking, your cost basis would be the fair market value of the crypto at the time you received it, which is also taxed as ordinary income.

Determining Fair Market Value

The fair market value (FMV) is the price at which a cryptocurrency would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.In practice, this is often the price listed on a major cryptocurrency exchange at the time of the trade. How are crypto-to-crypto trades taxed? Crypto-to-crypto trades are taxed as taxable events, with capital gains or losses calculated based on the price change of the cryptocurrencies from the time they were acquired and how they have changed since you originally obtained them. It is essential to track these transactions for accurate tax reporting.Documenting the source of your FMV data is essential, especially if you use multiple exchanges.

Short-Term vs.Long-Term Capital Gains

The holding period of your cryptocurrency determines whether your gains are taxed as short-term or long-term capital gains.If you held the crypto for less than a year before trading it, the gain is considered short-term and is taxed at your ordinary income tax rate.If you held it for longer than a year, the gain is considered long-term and is taxed at a potentially lower rate (0%, 15%, or 20% depending on your overall taxable income).The distinction between short-term and long-term gains can significantly impact your tax liability.

Example Calculation

Let's say you bought 2 Bitcoin (BTC) for $20,000 each in January 2024. Taxable events include selling, trading, spending, and earning crypto. Short-term gains are taxed at higher income tax rates; long-term gains are taxed more favorably. Income from crypto (e.g, from work, mining, and staking) is taxed as ordinary income. Reporting is required, even if no tax forms (like 1099s) are received.In July 2024, you trade 1 BTC for $30,000 worth of Litecoin (LTC).Your cost basis for that 1 BTC is $20,000.Your capital gain is $10,000 ($30,000 FMV - $20,000 cost basis). Download your tax report forms. Koinly provides a complete, ATO-compliant crypto tax report. Whether you're filing through myGov or with an accountant, Koinly has you covered.Because you held the BTC for less than a year, this is a short-term capital gain and will be taxed at your ordinary income tax rate.

If, however, you had waited until January 2025 to make the trade, the $10,000 gain would be considered a long-term capital gain, potentially subject to a lower tax rate.

Common Crypto Tax Scenarios and Their Implications

Beyond simple crypto-to-crypto trades, several other scenarios can trigger tax implications.Understanding these scenarios is vital for comprehensive tax planning.

Selling Crypto for Fiat Currency: This is a straightforward taxable event.You calculate the gain or loss based on the difference between the selling price and your cost basis.
Using Crypto to Buy Goods or Services: Just like a crypto-to-crypto trade, using crypto to make a purchase is treated as selling the crypto at its fair market value.You'll need to calculate the gain or loss based on the FMV and your cost basis.
Earning Crypto Through Staking or Mining: Crypto earned through staking or mining is generally considered taxable income at the time you receive it. How are crypto-to-crypto trades taxed? Trading your crypto for another cryptocurrency is considered a disposal event subject to capital gains tax. You ll incur a capital gain or loss depending on how the price of the crypto you traded away has changed since you originally received it.The fair market value of the crypto at the time you receive it becomes your cost basis.
Receiving Crypto as Payment for Goods or Services: If you receive crypto as payment for goods or services, you must report the fair market value of the crypto as income.
Crypto Leverage Trading: Trading with leverage amplifies both potential gains and losses, and it's crucial to accurately track each transaction and the associated fees.

The Challenges of Crypto Tax Reporting

Despite the clear guidelines, reporting crypto taxes can be challenging due to several factors.

Complexity of Transactions: Keeping track of numerous trades across multiple exchanges can be overwhelming.
Lack of Standardized Reporting: Unlike traditional financial institutions, crypto exchanges often don't provide standardized tax forms like 1099s.This means you are responsible for compiling all the necessary data.
Difficulty Tracking Cost Basis: Tracking the cost basis for each crypto holding, especially after numerous transactions, can be difficult.
Evolving Tax Regulations: Crypto tax laws are constantly evolving, making it difficult to stay up-to-date.

Strategies for Simplifying Crypto Tax Reporting

Fortunately, several strategies can help simplify the process of reporting your crypto taxes.

Maintain Detailed Records: Keep meticulous records of all your crypto transactions, including purchase dates, sale dates, cost basis, and transaction history.
Use Crypto Tax Software: Crypto tax software like Koinly, CoinTracker, ZenLedger, and CoinLedger can automate the process of tracking your transactions, calculating your gains and losses, and generating tax reports.These tools integrate with various exchanges and wallets to streamline data import.
Consolidate Your Transactions: Where possible, consolidate your crypto transactions onto a few exchanges to simplify tracking.
Consult with a Crypto-Savvy Tax Professional: A tax professional familiar with crypto can provide personalized advice and ensure you're complying with all applicable regulations.

Leveraging Crypto Tax Software

Crypto tax software offers numerous benefits:

Automated Tracking: Automatically tracks your crypto transactions across multiple exchanges and wallets.
Accurate Calculations: Accurately calculates your capital gains and losses, taking into account cost basis, FMV, and holding periods.
Tax Report Generation: Generates ready-to-file tax reports, including Form 8949 and Schedule D.
Compliance Assurance: Stays up-to-date with the latest IRS crypto tax rules to ensure compliance.
Time Savings: Saves you hours of manually reconciling trades.

Using crypto tax software can significantly reduce the risk of errors and ensure you are accurately reporting your crypto taxes.

Essential Tax Forms for Crypto Traders

Several tax forms are commonly required for crypto tax reporting:

Form 8949: Sales and Other Dispositions of Capital Assets.This form is used to report capital gains and losses from the sale or exchange of capital assets, including cryptocurrencies.
Schedule D (Form 1040): Capital Gains and Losses. In this article, you ll learn how crypto taxes work, how much you might owe, how to report everything correctly, and which strategies can help you lower your tax bill. What You Need to Know About Crypto Taxes. Crypto is taxed as property, not currency, which means any time you sell, trade, or use it for purchases, you may trigger a taxable event.This form is used to summarize your capital gains and losses from Form 8949 and calculate your overall capital gain or loss for the year.
Form B: This form is needed for reporting trades of crypto assets made through an exchange.

Avoiding Common Crypto Tax Mistakes

Several common mistakes can lead to penalties and interest charges. See full list on cryptotaxcalculator.ioHere are some tips to avoid them:

Failing to Report All Transactions: It's crucial to report every taxable event, even if you didn't receive a 1099 form.The IRS can track crypto transactions through blockchain analysis.
Incorrectly Calculating Cost Basis: Using the wrong cost basis can lead to inaccurate gain or loss calculations.
Misclassifying Gains as Long-Term: Make sure you accurately determine the holding period of your crypto to avoid misclassifying short-term gains as long-term.
Ignoring State Taxes: Remember that some states have their own crypto tax laws, so be sure to comply with state regulations as well.

Seeking Professional Guidance

Given the complexity of crypto taxes, consulting with a crypto-savvy tax professional is highly recommended. Use crypto tax software like CoinTracker, Koinly, or CoinLedger; Keep track of purchase dates, sale dates, cost basis, and transaction history; File the correct tax forms (Form 8949 and Schedule D for capital gains) Work with a Crypto-Savvy Tax Pro. The tax code is always changing, and crypto tax laws are evolving fast.They can provide personalized advice, help you navigate complex tax situations, and ensure you're complying with all applicable regulations. Generate ready-to-file tax reports, including Form 8949 and Schedule D. By consolidating all your transactions in one place, Crypto Tax Calculator can save you hours of reconciling trades manually. Our software is continually updated to reflect changes in IRS crypto tax rules, ensuring you remain compliant.An experienced professional can also help you identify tax-saving opportunities and minimize your tax liability.

Tax-Saving Strategies for Crypto Investors

While you can't avoid taxes altogether, you can implement strategies to potentially reduce your tax burden:

Tax-Loss Harvesting: If you have crypto assets that have decreased in value, you can sell them to realize a capital loss.This loss can be used to offset capital gains, reducing your overall tax liability.
Holding Crypto for Long-Term Gains: Holding crypto for longer than a year can qualify the gains for lower long-term capital gains tax rates.
Relocating to Low-Tax Jurisdictions: Some US states have no income tax on crypto gains, and a few countries offer tax-free crypto gains.However, carefully consider the implications of relocation before making any moves.

Staying Updated on Crypto Tax Regulations

Crypto tax laws are constantly evolving. SARS views crypto-to-crypto trades and payments for goods or services as barter transactions, subjecting any resulting profit to capital gains tax at 18%. Income from crypto mining, staking, airdrops, and hard fork proceeds is considered income and taxed at 45%, but if the owner intends to hold the mining income long term, it may be eligibleStay informed by:

Following IRS Guidance: Regularly check the IRS website for updates on crypto tax regulations.
Subscribing to Crypto Tax Newsletters: Stay informed about the latest developments in crypto tax law through reputable newsletters and publications.
Attending Crypto Tax Webinars: Attend webinars and conferences focused on crypto tax compliance.

Frequently Asked Questions About Crypto Taxes

Do I owe taxes if I don't sell my crypto?

No, you don't owe taxes simply for holding cryptocurrency.Taxes apply only when you sell, trade, or use crypto in a taxable event.

What happens if I don't report my crypto transactions?

Failing to report your crypto transactions can result in penalties, interest charges, and even potential legal consequences.The IRS has increased its scrutiny of crypto transactions and is actively pursuing non-compliance.

Can the IRS track my crypto transactions?

Yes, the IRS can track crypto transactions through blockchain analysis and by working with crypto exchanges to obtain information about their users.

Is using a crypto tax calculator safe?

Yes, using a reputable crypto tax calculator is generally safe. Free Crypto Tax Calculator. Easily calculate your crypto taxes with our free crypto tax calculator. This tool covers all scenarios, including crypto-to-crypto trades, conversions, and fiat transactions, ensuring compliance with the latest IRS tax regulations. How to Calculate Cryptocurrency Tax in the US (2025)However, ensure that the software you choose has strong security measures to protect your data. Yes, every cryptocurrency trade is considered a taxable event by the IRS, including crypto-to-crypto exchanges. When you trade one cryptocurrency for another, you're essentially selling the first crypto and buying the second. You must calculate the gain or loss on the crypto you're trading away based on its value in USD at the time of the exchange.Also, verify the software's accuracy and compliance with the latest tax regulations.

Conclusion: Navigating Crypto Taxes with Confidence

Understanding crypto-to-crypto trades and their tax implications is crucial for any crypto investor. Crypto tax software like Koinly makes the reporting process simple regardless of trade size. Is A Crypto Tax Calculator Safe To Use? Calculating gains, losses, and cryptocurrency taxes owed on every crypto transaction can be an overwhelming manual process. In fact, using crypto tax software is one of the best ways to correctly and easily reportRemember that the IRS treats these trades as taxable events, requiring you to calculate and report any capital gains or losses. The IRS crypto guidance generally treats crypto as a fixed asset, like property, meaning you must record and report any capital gains or losses. Each time you make crypto-to-crypto trades, itMaintaining meticulous records, leveraging crypto tax software, and consulting with a crypto-savvy tax professional are essential steps towards ensuring compliance and minimizing your tax liability.By staying informed about evolving tax regulations and proactively managing your crypto taxes, you can navigate the complex world of digital asset taxation with confidence.Key takeaways include:

Crypto-to-crypto trades are taxable events.
Accurately calculate your capital gains and losses.
Use crypto tax software to simplify reporting.
Consult with a tax professional for personalized advice.
Stay updated on evolving tax regulations.

Taking these steps will not only help you avoid potential penalties but also empower you to make informed decisions about your crypto investments and tax planning.