If you have sold crypto and skipped the tax reporting, you are in the majority. A new study using real IRS administrative data found that only 32 to 56 percent of US crypto owners actually report their gains. But that gap is closing, and new broker reporting rules will soon make unreported transactions very easy to spot.
Less Than Half of Crypto Owners Are Reporting Sales to the IRS
Researchers analyzed over 221 million US tax returns filed between 2013 and 2021 in a study titled , published in the Review of Accounting Studies. They found about 17.4 million individuals reported some form of cryptocurrency to the IRS. The problem: national surveys estimate between 31 and 54 million US adults own crypto. That puts the reporting rate at just 32 to 56 percent.
Under , crypto is treated as property for tax purposes. Every sale, trade, or swap triggers a taxable event. That rule has not changed.
The IRS Virtual Currency Checkbox Is Actually Working
In 2019, the IRS added a yes/no question to asking whether taxpayers had engaged in cryptocurrency transactions during the year. In 2020, the question was moved to the top of the form, the first item every filer sees.
The study found this checkbox nudged more people to report. Self-prepared filers who weren’t already receiving third-party crypto forms became more likely to disclose crypto activity after 2019. A simple checkbox moved the needle on compliance.
Hold a capital asset for more than one year before selling, and the IRS taxes your gain at the lower long-term capital gains rate, which tops out at 20 percent. Sell in under a year, and gains are taxed as ordinary income, up to 37 percent.
Stock investors routinely time their sales to hit that one-year mark. The study found that crypto sellers largely do not. Many sell just short of the threshold, forfeiting significant tax savings.
New IRS Reporting Rules Will Make Unreported Crypto Gains Impossible to Hide
Starting with the 2025 tax year, cryptocurrency exchanges will be required to issue to both taxpayers and the IRS directly, under rules enacted by the . When the IRS receives a copy of your transaction data directly from your exchange, unreported gains become very easy to detect.
The compliance window is not closed yet, but it is getting smaller fast. If you have unreported crypto gains from prior years, the time to address them is now, before that reporting infrastructure is fully in place.
Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.