Crypto and taxes: Which forms you need to file

If you’ve been dabbling in digital assets, you may be tempted to skip telling the Internal Revenue Service about crypto-related transactions on your annual tax filing.

But that could be a costly omission, says Lisa Zarlenga, who advises clients on cryptocurrency tax issues as tax partner at the law firm Steptoe. The IRS has been “cracking down” on taxpayers who don’t disclose their taxable digital asset transactions as required by law, according to Zarlenga.

Though the agency must take certain steps to obtain the information, Zarlenga says the IRS can track down your digital asset transactions. That means you could be subject to penalties if you fail to report digital assets.

“Some people might think, ‘Oh, well, they’re never going to find out about me…’ I wouldn’t necessarily assume that,” says Zarlenga.

With that in mind, here are four basic things to know about when and how to report digital assets in your tax return:

1. When you need to report digital assets

Zarlenga says that the IRS treats digital assets as property, like a car, for tax purposes. If you buy, sell, or trade property, you may be subject to taxes. The same is true of digital assets like cryptocurrency.

A taxpayer must answer yes or no to the following question on the front of the IRS Form 1040, U.S. Individual Income Tax Return: “At any time during 2023, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

If you owned digital assets but had no transactions, the IRS says you can check no in response to this question. You may also check no if you only had certain nontaxable activities, such as purchasing and holding digital assets or transferring them from one wallet to another wallet, both of which are in your control.

2. How to report digital assets

If you have reportable digital asset transactions, they must be disclosed on Form 8949, Sales and Other Dispositions of Capital Assets, and on Schedule D, Capital Gains and Losses.

The good news is that centralized digital asset platforms can help with reporting digital asset transactions if they provide monthly or yearly statements. Use this information to report all income from any digital asset transactions.

If your transactions did not take place on a centralized platform, Zarlenga says you can buy crypto tax software that is geared toward tracking that activity. (In 2026, for transactions occurring in 2025, taxpayers should begin receiving Forms 1099-DA from their digital asset brokers, similar to the Form 1099-B received from their stock brokers.)

When transactions are more complex, like lending tokens or providing liquidity to a decentralized exchange, they may fall into a gray area for reporting related income, because the IRS has not provided guidance, Zarlenga says. If you are at all confused about what to report or you’re an active trader with frequent transactions, Zarlenga recommends working with a certified public accountant who knows how to report digital asset income to the IRS.

The agency also maintains a frequently asked questions page that you can consult to learn more about reporting digital asset income.

3. What happens if you fail to report digital assets

With its summons power, the IRS can seek and obtain account information on the more significant transactions that take place on platforms like Coinbase and Kraken. If your activity shows up in these reports but not on your return, the IRS would likely send you a letter of inquiry, which could become a full-fledged audit, says Zarlenga.

If the IRS learns that you have not reported digital asset income, it can assess the new tax owed, plus interest, and will likely impose a penalty. Zarlenga says that penalty could be for negligence or disregard of the rules, substantial understatement, or even fraud, depending on the IRS’ findings.

In general, penalties for these violations are 20 percent of the underpayment, or in the case of fraud, 75 percent of the underpayment. The IRS may also choose to refer a case for criminal investigation.

4. How to fix your return if you failed to report digital assets

If you’ve already submitted a return but want to change how you reported digital asset transactions, Zarlenga says you can file a superseding return until the tax return is due, on April 15, 2024. Be sure to file the new return prior to the due date or file an extension if you expect to miss that deadline.

If Tax Day has come and gone, you’ll need to file an amended return.

Zarlenga says taxpayers shouldn’t worry that proactively correcting their mistake will land them in hot water with the IRS.

Instead, the riskier thing to do is play the audit lottery, says Zarlenga: “Generally, if they find you on an audit, your chances of having a higher penalty are greater.”