In 2024, the cryptocurrency market experienced remarkable growth, with bitcoin surpassing the $100,000 mark in December, driven by increased institutional adoption and favorable regulatory developments. The total crypto market capitalization nearly doubled, peaking at a staggering $3.91 trillion in mid-December.
Bitcoin wasn’t alone – Ether and Ripple also saw significant gains, and some memecoins actually managed to outperform major cryptocurrencies. Despite some market volatility, the overall sentiment remained positive, with experts anticipating continued growth as more institutions and investors embraced digital assets.
While there was a lot for long-term crypto investors to smile about, there’s still quite a bit of uncertainty regarding cryptocurrency trades. Even in a more pro-crypto regulatory environment, buying and transacting digital assets can create headaches. Especially at tax time, when overall gains have been so impressive.
Earlier this year, we partnered with leading CPAs to answer the crypto tax questions sent in by the public. We hope the answers below are helpful as you prepare your 2024 tax returns (due Tuesday, April 15, 2025).
To learn more about the cryptocurrency tax pros that answered these questions, read their bios at the bottom of this article.
Note: Consult a qualified tax professional for advice specific to your situation – you can find one here. The purpose of this Q&A is to give you the background you need for a consultation with a professional advisor. Please do not construe the following as advice; consult a professional.
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General Crypto Taxation
“My Coinbase account was hacked, and a significant amount of BTC was stolen. How can I ensure that I don’t face tax consequences for this loss? Since the BTC was transferred out of my account rather than sold, does this impact how the IRS views the event for tax purposes? Also, are there any specific steps I should take to report or document the loss?”
Create a list of all your accounts, including wallets and exchanges. For wallets, establish a system to link each account to its corresponding seed phrase. This does not mean writing down the seed phrase itself but rather creating a way to identify which seed phrase belongs to which account.
Ultimately, it is the IRS’s responsibility to prove that a particular wallet receiving BTC belongs to you. However, having a well-documented list of accounts tied to seed phrases, in addition to your testimony, will be crucial.
The IRS will also check:
- Whether the wallet address receiving BTC has interacted with any of your other addresses.
- If there are future, similar unsubstantiated deposits.
For example, if you reported 10 BTC as stolen, but a year later, 9.8 BTC unexpectedly returns to your wallet from an unknown source without a clear explanation (e.g., a purchase), the IRS may argue that the original 10 BTC outflow wasn’t actually a theft.
If neither of these red flags (1 or 2) are present, and you have a clear list of accounts, you should be in a strong position.
-Justin, Crypto Tax Specialist
“If I receive crypto as a gift, do I owe taxes when I receive it, or only when I sell it?”
Good news! Receiving crypto as a gift is initially tax-free!
When You Receive the Gift:
- No immediate tax obligation
- No need to report is as income
- Your basis will be important for future sales
For the Gift Giver:
- Can gift up to $19,000 (2025 limit) per person annually without filing a gift tax return
- Amounts over $19,000 require filing a gift tax return
When You Sell: You’ll only owe taxes when you sell or exchange the gifted crypto, based on:
- The original basis (what the giver paid)
- The fair market value when sold
- How long you’ve held it (including the giver’s holding period)
-Joel, Elevated Tax Strategies
Crypto Retirement Accounts
“I sold some Ethereum from my self-directed 401k in 2024, do I need to report this?”
No, sales made within a self-directed 401(k) (also known as a solo 401(k)) are not reportable for tax purposes as long as the funds remain within the plan. This includes selling stocks, real estate, or other investments (like Ethereum) inside the account.
-Colby, Colby Cross CPA
Tax Reporting & Compliance
“What happens if I mistakenly underreport my crypto transactions? Are there penalties, and how can I correct the issue?”
If you misreport a crypto transaction, it needs to be corrected. Whether you report a capital gain to be too small, or report a loss that is too large, or completely omit a taxable event, an amendment should be filed to report the activity correctly. This amended return, assuming there was a tax bill associated with the event, will cause a tax balance owed to the IRS, along with interest and penalties on that tax. The interest and penalties tend to be much smaller than the original tax bill, unless a significant amount of time has passed and the tax is years overdue.
-Colby, Colby Cross CPA
“Is the “interest” I received on coins I kept in “Crypto Earn” on Crypto.com taxable?”
Yes, all interest received in the form of cryptocurrency is taxable. When you receive the payment in crypto, you will be recognizing income in the amount equal to the value of that cryptocurrency when it was received. This amount also serves as your cost basis. When you file your taxes, it should be reported as interest income similar to how you would report income from interest on your savings account. Then, if you sell that crypto currency in the future, you will have a capital gain or loss equal to the amount you sell it for minus your cost basis (when it was first received).
-Colby, Colby Cross CPA
“Can I claim losses for sales of altcoins on exchange to buy bitcoin?“
Yes, if you have an alt coin and trade it for another crypto like Bitcoin, that is a taxable event that triggers either a capital gain or loss. If that alt coin had dropped in value since it was first acquired, a capital loss would be recognized.
-Colby, Colby Cross CPA
Crypto Income & Payroll
“If I am paid in crypto for freelance or contract work, how do I report it, and do I need to pay self-employment tax?”
When you receive crypto for services, it’s treated just like getting paid in dollars.
For example: Let’s say you complete a project and receive bitcoin worth $1,000 at the time of payment – that $1,000 is your income, regardless of what happens to bitcoin’s value afterward.
Think of cryptocurrency payments like receiving payment in foreign currency, you need to “convert” it to USD for tax purposes.
- You’ll owe the 15.3% self-employment tax (12.4% Social Security + 2.9% Medicare)
- You can deduct 50% of this tax on your tax return
- Report everything on Schedule C (Form 1040) for your business income
If you later sell the crypto, you might have additional tax implications. For example, if you received $1,000 in bitcoin and later sold it for $1,200, you’d have:
- The original $1,000 as self-employment income
- A $200 capital gain to report on Form 8949 and Schedule D
-Joel, Elevated Tax Strategies
“What are the tax implications of using crypto for payroll or employee bonuses?”
Just like traditional payroll, you must:
- Withhold federal income tax
- Handle FICA tax withholding (7.65%)
- Follow state-specific withholding requirements
- Report payments on W-2s in USD based on the crypto’s value when paid
Consider the following before implementing crypto payments:
- Establish clear valuation policies
- Educate employees about potential capital gains/losses
- Consider limiting crypto payments to employees familiar with digital assets
- Maintain detailed records of crypto values at payment times
– Joel, Elevated Tax Strategies
Other Crypto Tax Questions
“What’s the best way to keep track of crypto transactions for tax reporting?”
The best way to keep track of crypto transactions is using a crypto tax software (e.g. Koinly, Cointracker, or TokenTax) can help you automate reporting and stay compliant.
– Jason, Jason M. Tyra
Tax Specialist Bios
A special thanks to all the crypto tax professionals who answered your additional questions for the 2024 tax season. Below is the professional background information of each specialist.
Colby Cross, Colby Cross CPA
Colby Cross is a licensed CPA based out of Seattle, Washington. He is an expert in cryptocurrency taxation and offers a complete array of tax services for his clients, including tax preparation and planning. Additionally, he enjoys educating and commonly speaks at conferences and seminars and has been featured in the Washington Post.
Justin McCormick, Crypto Tax Specialist
Justin McCormick is a seasoned expert in cryptocurrency taxation and compliance, bringing a unique blend of technical and legal expertise to the field. With a bachelor’s degree in computer science and a Juris Doctorate in Law, he is exceptionally well-equipped to help clients accurately calculate their tax obligations and navigate the ever-evolving complexities of cryptocurrency regulations.
Justin has worked with a diverse range of clients, from individuals with standard exchange accounts and hardware wallets to NFT companies and high-volume DeFi traders managing intricate portfolios. Regardless of the complexity of your crypto activity, Justin provides the strategic guidance and clarity needed to ensure compliance and peace of mind.
Joel S, Elevated Tax Strategies
Joel is Founder and CEO of Elevated Tax Strategies a firm that puts serving through education, expertise, & excellence as top priority. Leading a full-service firm that specializes in cryptocurrency taxation and complex digital asset strategies. With extensive experience in both traditional tax planning and emerging digital currencies.
Jason M. Tyra, Jason M. Tyra, PLLC
Jason M. Tyra is a Certified Public Accountant licensed to practice in the States of Texas and New York, an Attorney licensed to practice in Texas, and an ACFE Certified Fraud Examiner. Jason is a member of the Texas Society of Certified Public Accountants, the American Institute of Certified Public Accountants (AICPA), the Association of Certified Fraud Examiners (ACFE), the American Bar Association, and the Dallas Bar Association.
Note: The information presented in the article above is intended for educational purposes only. It is in no way meant to offer financial advice, and specific guidance about how to properly pay taxes in each individual case should be sought from a certified accounting professional.
Looking for CPA Crypto professionals that might be able to help with your taxes? Check out our growing directory of professionals.