Filing taxes can be stressful—especially when you’re juggling traditional investments and the fast-evolving world of cryptocurrency. Whether you’re a seasoned investor or just getting started, knowing how to report investments and cryptocurrency on your U.S. tax return is crucial for staying compliant and avoiding penalties.
The IRS has significantly increased its scrutiny of digital assets and capital gains. That means taxpayers can no longer afford to be vague or uninformed when it comes to declaring financial activity. If you’ve earned interest from stocks, sold crypto, or even received NFTs as gifts, your actions may have tax implications.
This guide will break down the essentials of reporting both traditional investments and cryptocurrency to the IRS. From understanding what qualifies as a taxable event to which forms you need, we’ll help you file accurately and confidently.
What Is Considered a Taxable Investment?
Before diving into specific reporting requirements, it’s important to understand what the IRS considers a taxable investment.
Common taxable investment types include:
Stocks and Bonds: Buying and holding is not taxable, but selling for a profit or receiving dividends is.
Mutual Funds & ETFs: Distributions and capital gains must be reported.
Cryptocurrencies: Any trade, sale, or conversion into cash or another asset is considered a taxable event.
Real Estate Investment Trusts (REITs): Dividends and share sales may trigger tax obligations.
Options and Derivatives: Gains and losses must be carefully tracked and reported.
In general, the IRS is interested in capital gains, dividends, and interest income that results from your investments. Whether you actively trade or passively invest, you’ll likely have something to report.
Understanding Capital Gains and Losses
What are Capital Gains?
When you sell an investment for more than you paid for it, the difference is called a capital gain. This is a taxable event.
Short-term capital gains (for assets held less than 1 year) are taxed at ordinary income tax rates.
Long-term capital gains (assets held more than 1 year) enjoy lower tax rates, ranging from 0% to 20%.
What if You Lose Money?
You can also report capital losses, which can offset your gains and reduce your taxable income. If your losses exceed your gains, you can deduct up to $3,000 from your regular income per year and carry the rest forward to future years.
How to Report Stock Market Investments
When it comes to reporting traditional investments, the process is relatively straightforward.
Forms You’ll Need:
Form 1099-B: Provided by your brokerage, this form lists your capital gains and losses.
Form 8949: Used to list each individual sale of an investment.
Schedule D (Form 1040): Summarizes capital gains and losses for the year.
Make sure your brokerage provides accurate cost basis information, which includes the price you paid for your investments. This is essential for calculating gains or losses.
How to Report Dividends and Interest
Dividends and interest are treated differently from capital gains.
Forms You’ll Need:
Form 1099-DIV: Lists dividends from stocks and mutual funds.
Form 1099-INT: Lists interest earned from savings accounts, bonds, and other sources.
These amounts go on Schedule B (Form 1040). Qualified dividends may be taxed at the lower capital gains rate, while ordinary dividends and interest are taxed as regular income.
Cryptocurrency and the IRS: What You Must Know
The IRS treats cryptocurrency as property, not currency. This means every time you sell, trade, or use crypto, it may be considered a taxable event.
When Is Crypto Taxable?
Selling crypto for USD or any fiat currency
Trading one cryptocurrency for another (e.g., BTC to ETH)
Using crypto to purchase goods or services
Receiving crypto as income or payment for services
Earning staking or mining rewards
Holding crypto in a wallet is not taxable, but the moment it’s used in a transaction, it becomes reportable.
How to Report Cryptocurrency on Your Tax Return
Forms You’ll Need:
Form 8949: Report each transaction, including date acquired, date sold, cost basis, proceeds, and gain/loss.
Schedule D: Summarizes total capital gains and losses from your crypto transactions.
Schedule 1: If you earned crypto via staking, mining, or as a form of compensation, it goes here as “Other Income.”
Schedule C: If you operate a crypto-based business or mine professionally, report income and expenses here.
Starting in 2020, every tax return now includes a yes/no question: “Did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” Answering “No” when the true answer is “Yes” may be considered fraud.
Keeping Track of Your Crypto Activity
Tracking crypto activity manually can be overwhelming, especially if you use multiple exchanges. Fortunately, there are crypto tax software tools that can import your trading history and generate IRS-ready documents.
Top Crypto Tax Tools:
CoinTracker
Koinly
TokenTax
CryptoTrader.Tax (now rebranded as CoinLedger)
These tools often integrate directly with Coinbase, Binance, Kraken, and other exchanges, simplifying the reporting process significantly.
What Happens If You Don’t Report Your Crypto or Investments?
Failure to report investment income or crypto activity can lead to:
IRS audits
Substantial penalties and interest
Possible criminal charges for tax evasion
The IRS has issued John Doe summonses to crypto exchanges, compelling them to share user data. If you believe your crypto activity is “under the radar,” think again. Transparency is increasing every year.
Tips to Simplify Tax Season
Filing taxes doesn’t have to be a nightmare. Here are some best practices for investors and crypto holders:
1. Keep Detailed Records
Maintain logs of every buy/sell transaction, including:
Date acquired and sold
Amount and type of asset
USD value at the time of transaction
Fees paid
2. Use Portfolio Trackers
Apps like Delta and CoinStats can help you monitor your investments throughout the year, making tax reporting easier.
3. File Early and Accurately
Avoid the last-minute rush. Early filers reduce their chances of errors and missed forms.
4. Work With a Tax Professional
If your investment or crypto situation is complex, consult a CPA who specializes in digital assets and investment taxation.
Are NFTs Taxable Too?
Yes, NFTs (non-fungible tokens) are also subject to tax. Buying an NFT with crypto is considered a disposal of the cryptocurrency, which creates a taxable event.
If you’re an NFT creator:
Sales proceeds are income and must be reported.
Gas fees can often be deducted as business expenses.
If you’re an NFT collector:
You may face capital gains taxes when you sell or trade NFTs.
Key Terms to Know
Understanding tax lingo can help you navigate the process better:
Cost Basis: The original value of your investment or crypto asset.
Fair Market Value (FMV): The asset’s value in USD at the time of transaction.
Form 1099-B/K/MISC: Various IRS forms used to report income.
Capital Gain/Loss: Profit or deficit from the sale of a capital asset.
Conclusion: Stay Compliant, Save Money
Knowing how to report investments and cryptocurrency on your U.S. tax return is more important than ever. With the IRS cracking down on underreported income and crypto transactions, transparency and accuracy are non-negotiable.
By keeping detailed records, using the right software, and understanding which forms to file, you can avoid costly mistakes and reduce your tax liability.