Purpose: This guide explains the mechanics behind US crypto tax reporting at a high level, focused on spending digital assets. It is not tax advice.
Quick disclaimer: If you have a complex situation, consider speaking with a qualified tax professional. Rules can change and details matter.
Why paying with crypto can be a tax event
In US tax practice, the IRS treats virtual currency as property. When you sell, exchange, or otherwise dispose of a digital asset, you may need to report a capital gain or loss.
Practical example: buying something with BTC can trigger capital gains
Imagine you bought 0.01 BTC for $400 last year. Today, that same 0.01 BTC is worth $500, and you use it to buy a laptop.
- The event: Even though you did not sell for cash, the IRS can treat spending BTC as a disposal at the fair market value at the time of purchase.
- The result: You may owe capital gains tax on the $100 gain (your $500 value minus your $400 cost basis), depending on your situation.
- What creates the hassle: You need records showing when you acquired the BTC, your cost basis, and the value at the time you spent it.
What counts as a “disposition” in everyday use
- Buying goods or services with crypto
- Exchanging one crypto asset for another
- Selling crypto for fiat
What you typically need to track
- When you acquired the asset (date)
- Your cost basis (what you paid, including certain fees)
- Fair market value at the time of spending (and your valuation source)
- Fees and transaction records (wallet/exchange history, receipts, confirmations)
Why de minimis proposals matter
De minimis proposals are designed to reduce the reporting burden for small transactions (for example, low-value retail purchases) where tracking gains/losses can be impractical. These proposals generally aim to create a threshold where certain small gains on everyday purchases do not have to be reported.
Common questions (quick)
- Do small purchases matter? Often, yes. Even small spends can create recordkeeping overhead if there is no exemption.
- What if I use a payment app? You may still need acquisition and value-at-spend records. Some apps provide reports, but verify accuracy.
- What if I lose my records? Reconstructing cost basis can be difficult. Keep consistent logs and backups.
Primary references
- Taxpayer Advocate Service (IRS): Report your virtual currency transactions
- Sen. Cynthia Lummis (July 3, 2025): Lummis Unveils Digital Asset Tax Legislation
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