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Cryptocurrency Capital Gains Tax: What You Need to Know & How to Stay Compliant

As cryptocurrency continues to gain mainstream adoption, tax authorities—including the IRS—have increased their focus on crypto capital gains tax compliance. Whether you’re a casual investor, a day trader, or a business accepting crypto payments, failing to report cryptocurrency transactions correctly can lead to penalties, audits, or even tax fraud charges.

At Cumberland Law Group, we specialize in helping individuals and businesses understand, report, and resolve cryptocurrency tax issues. This guide will cover how crypto is taxed, common mistakes, and avoiding IRS trouble.

How Is Cryptocurrency Taxed?

The IRS classifies cryptocurrency as property, meaning any profits you make from buying, selling, or exchanging crypto are subject to capital gains tax.

  1. Short-Term Capital Gains Tax

    • If you sell or trade crypto after holding it for less than one year, your profits are taxed as ordinary income (same rates as wages/salary).
    • Depending on your tax bracket, tax rates range from 10% to 37%.
  2. Long-Term Capital Gains Tax

    • If you hold crypto for more than one year before selling or trading, your profits are taxed at the lower capital gains tax rates of 0%, 15%, or 20%, depending on your income level.

Taxable Crypto Transactions

  • Selling cryptocurrency for fiat (USD, EUR, etc.)
  • Trading one crypto for another (BTC → ETH, for example)
  • Using crypto to purchase goods and services
  • Earning crypto through staking, mining, or as income (taxed as ordinary income, not capital gains)

Non-Taxable Crypto Transactions

  • Buying and holding crypto (no sale or trade involved)
  • Transferring crypto between your own wallets
  • Gifting cryptocurrency (under $18,000 per year per recipient)

Failure to properly report taxable transactions can result in IRS audits, tax penalties, or criminal charges.

Common Crypto Tax Mistakes That Can Lead to IRS Problems

Many taxpayers unknowingly make reporting errors or fail entirely to report crypto activity. Here are the top mistakes that could trigger an IRS audit:

  1. Not Reporting Crypto Transactions 
    • The IRS now requires taxpayers to report crypto transactions on their tax returns, even if they didn’t make a profit.
  2. Incorrectly Reporting Trades 
    • Swapping crypto for another (e.g., BTC to ETH) is taxable, but many traders fail to report it.
  3. Failing to Track Cost Basis 
    • If you don’t keep records of your purchase price (cost basis), you may overpay on taxes.
  4. Using Offshore Exchanges Without Reporting 
    • The IRS has cracked down on foreign crypto exchanges—if you use one, you may need to file an FBAR (Foreign Bank Account Report).
  5. Ignoring DeFi, Staking, and Airdrop Taxes 
    • Earnings from staking, yield farming, and airdrops are taxable as income, but many investors don’t report them properly.
  6. Trying to Hide Crypto Transactions 
    • The IRS partners with blockchain tracking firms to identify unreported wallets and transactions, and hiding crypto is considered tax fraud.

If you’ve made any of these mistakes, fixing them before the IRS contacts you is crucial.

What Happens If You Don’t Pay Crypto Taxes?

Failing to report or pay cryptocurrency taxes can lead to serious legal consequences, including:

  • IRS Audits – The IRS uses AI and blockchain tracking to identify unreported crypto gains. Audits can result in back taxes, interest, and penalties.
  • Tax Penalties & Interest – Late payments can accrue up to 25% in penalties plus interest, leading to a much larger tax bill.
  • Wage Garnishment & Bank Levies – If unpaid taxes remain unresolved, the IRS can freeze your bank accounts and garnish your wages.
  • Criminal Tax Charges – Intentionally avoiding crypto taxes can result in felony tax evasion charges, with potential fines of up to $250,000 and prison time.

Don’t wait until the IRS contacts you—take action now to avoid legal trouble.

How Cumberland Law Group Can Help

At Cumberland Law Group, we have extensive experience resolving cryptocurrency tax issues for traders, investors, and businesses. Whether you’re behind on tax filings, facing an audit, or unsure how to report your crypto income, we can help.

  • Audit Defense & IRS Negotiation – If you’re under audit for unreported crypto transactions, we’ll represent you and fight for the best outcome.
  • Crypto Tax Backfiling & Voluntary Disclosure – If you didn’t report past crypto transactions, we’ll help you file amended returns to avoid IRS penalties.
  • Offer in Compromise (Tax Debt Settlement) – Owe more than you can afford? We negotiate with the IRS to reduce your tax liability.
  • Penalty Abatement & Tax Relief – If you’re facing hefty IRS penalties, we can request penalty removal or reduction based on reasonable cause.
  • Tax Planning for Crypto Investors & Businesses – We’ll help you legally minimize crypto taxes and stay compliant with IRS regulations.

The IRS is increasing enforcement on cryptocurrency—waiting too long could cost you thousands. Don’t risk an audit or legal action—let us help you fix the problem today.

Take Action Now: Get Crypto Tax Help Today

You have tax obligations if you’ve traded, sold, or earned cryptocurrency. Ignoring them can lead to penalties, audits, and legal issues.

At Cumberland Law Group, we help crypto investors and businesses stay compliant and avoid IRS trouble. Our experienced tax attorneys are ready to assist you.

📞 Call (800) 960-5359 or visit CumberlandLawAtlanta.com to schedule a consultation.

The IRS is watching—don’t wait until it’s too late. Get expert crypto tax help today.

Cumberland Law Group Resources

  1. IRS Tax Levy Assistance
     https://cumberlandlawatlanta.com/irs-tax-levy-what-it-is-and-what-you-can-do-about-it/ 
  2. Tax Lien and Levy Resolution
     https://cumberlandlawatlanta.com/tax-lien-and-tax-levies/ 
  3. IRS Appeals Services
     https://cumberlandlawatlanta.com/how-and-when-to-appeal-irs-tax-assessments-and-collection-actions/ 
  4. Innocent Spouse Relief
     https://cumberlandlawatlanta.com/what-is-innocent-spouse-tax-relief/ 

IRS & Other Resources

  1. IRS Cryptocurrency Tax Guide
     https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies 
  2. Understanding Cryptocurrency Tax Rates (CoinLedger)
     https://coinledger.io/blog/cryptocurrency-tax-rates
  3. IRS Form 8949 – Reporting Crypto Sales & Trades
     https://www.irs.gov/forms-pubs/about-form-8949 
  4. IRS Taxpayer Guide on Reporting Crypto Income
     https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-virtual-currency-transactions
  5. Foreign Bank Account Reporting (FBAR) for Crypto https://www.fincen.gov/resources/statutes-regulations/guidance/application-fincens-regulations-persons-administering
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Alex Mitchell

Alex Mitchell’s practice focuses primarily on Federal (IRS) tax controversy, criminal defense, and personal injury. Mitchell manages a team of attorneys and other legal professionals. Mitchell received his Bachelor of Science Degree in Criminal Justice from Jacksonville State University (JSU). While at JSU, he served as an assistant video coordinator for the football team. After graduating from JSU, Alex received a scholarship to attend Southern University Law Center. At Southern University Law Center, Alex was an active member of the American Bar Association, Phi Alpha Delta Fraternity, Law Students for Reproductive Justice, Criminal Law Society (Secretary), and Sports and Entertainment Legal Association (Finance Director).