Tax Return Cryptocurrency Question – When to Answer YES, and When to Answer No


The very first question the IRS makes on your federal personal tax return is if you had a cryptocurrency taxable transaction. You will need to answer yes, or no to this question. In this video we discuss when to answer yes to the cryptocurrency question on your tax return, and when to answer no to this crypto tax question.

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Did you know that this tax season the IRS is going to ask everyone what they did with their cryptocurrency in 2021? Depending on what you did with your crypto 2021, you may have to report to the IRS or there are some cases where you may not have to report to the IRS. So, it’s very important that you know when you need to report to the IRS and when you don’t have to report the IRS because if you do this wrong, you may have serious tax problems with the IRS in the future. That’s what we are going to talk about in this video.

Hello from FreedomTax Accounting, we’re an accounting firm where we have been providing quality tax and accounting services now for over 20 years. In this channel our goal is that small business owners achieve their financial goals.

Now for the last couple of years the IRS has been taking steps because they are interested in knowing what you did with your crypto. Why? Because in the last three years, the adoption and the usage of crypto in the US has doubled every year. It is estimated that in 2021 approximately 27 million Americans bought or used cryptocurrency, and it’s expected that number to go up to 50 million crypto users in the US in 2022. So, the IRS knows that people are making money through crypto, and they want their share of taxes.

How do we know that the IRS is interested in crypto? Let’s go to the slides.

If you see your 2021 tax return, this is your 2021 tax return. The first part you need to put your name, your home address, and look what’s the first question on your personal tax return. Look at what it says: “At any time during 2021, did you receive, sell, exchange or otherwise dispose of any financial interest in any virtual currency? You need to answer “Yes”, or you need to answer “No”.

So, the very first thing the IRS is asking you, in your 2021 tax return is. Do you need to report or have transactions in crypto in 2021? That gives you an idea of how important or how serious the IRS is taking your crypto tax reporting. So, you need to answer “Yes” or “No” and in this video we’re going to show you when you need to answer “Yes”, and when you need to answer “No”.

How is the IRS enforcing its laws? Because remember, you sign your tax return; when you sign it, it says “Under penalties of perjury, I declare that I have examined this return”, and basically you’re saying “I am telling the truth. I am signing it and that’s legally binding you to whatever you report on this tax return”. And why is this serious? because what is the IRS penalty for perjury or fraud? Because if you answer this question incorrectly, the IRS can say you’re committing fraud. The penalty for lying on your tax return and not disclosing any taxable cryptocurrency transaction is. You get a fine of 75% of the tax do, up to $250,000, and you can get up to 3 years in jail. There’s no statute of limitations, meaning that you cannot just let time pass by and hope that the IRS that the statute of limitations goes by, 3 years ago by, and that the IRS can’t go after you. There’s no statute of limitations when it comes to perjury or fraud in the eyes of the IRS. So, this is very serious.

When do you answer “Yes” and when do you answer “No”?

You answer “Yes” if:

Number one; you have received crypto as payment for goods or services you provided. So, if you provide a service or goods and somebody pay you in crypto, that is a taxable event.

Also, if you have received crypto for free as a gift, and if it doesn’t qualify as a bona fide gift under federal tax rules, we don’t have time to discuss that, you can look for more information on the IRS website. So, if somebody gave you a gift in crypto and it doesn’t qualify as a bona fide gift under federal tax rules, then that is a taxable transaction, and you need to report it to the IRS.

Also, if you have received new crypto as a result of mining or staking, you need to report that crypto. You may tell me what Carlos, it was all over the news recently that the IRS is not going to tax staking; well, that’s not completely true. If you have been aware of that case, the IRS just had a settlement with someone, and they basically gave them a refund on their staking taxes. The IRS, reaching a settlement of refund is not law-abiding and it doesn’t provide a law-abiding precedent to say that the IRS is saying staking is tax free. So, as of now, if you are doing mining or staking, especially staking, that is a taxable event in the answers of the IRS.

You also answered “Yes” if you exchange crypto for property goods or services. The first in the other slide if something paid you in crypto, that is a taxable event. But in this case if you paid in crypto, for goods or services, that is a taxable event, and you need to report it.

Also, you need to answer “Yes” if you exchange or trade crypto for another token or coin, the famous swap. We’ve been doing consultations for the last couple of months and there’s a lot of confusion in crypto swapping. A lot of people think if I have a coin and I swap it for another coin, I don’t have to pay taxes; that is not true, that is a taxable event. So, if you have swapped Bitcoin for Ethereum or Cardano for Solana, if you’ve been swapping coins, then you have to answer “Yes” on your tax return.

Also, if you have sold crypto, if you have been buying crypto at one price and you’ve been selling it at another price, either a gain or a loss, you have to report this sale of your cryptocurrency.

That’s when you need to answer yes.

Now, you need to answer “No” to the IRS tax return question about crypto:

If you have just been buying crypto and you’re holding, basically you’re holding onto it and you haven’t sold it, you haven’t swapped it. So, if you in 2021 only bought crypto and you haven’t sold anything, if you haven’t paid anything with crypto, if you haven’t swapped your crypto, your answer is “No”.

Also, if you have your crypto in one wallet, that’s your wallet and you transfer it to another wallet that you own. Or an account in an exchange, let’s say that you have your crypto in Coinbase and you transfer it to Binance; if both your accounts are yours then you don’t have to read to answer yes, you can still answer no; but if you transfer from your wallet to somebody else’s wallet, that is considered a sale.

So, this is when you answer “No”.

Now, doing crypto taxes is very complicated and we always suggest that you use crypto tax software. So, if you do have to report your crypto transactions, it is so complicated that we suggest that you use crypto tax software. These are the 3 tax-software that we recommend.

If you do a lot of crypto transactions, you do swapping, you use different blockchains, you do DeFi, then we recommend you use Koinly or ZenLedger.

If you’re using centralized exchanges like Coinbase, kraken, and you haven’t done DeFi, then CryptoTrader.Tax is a very good option for you.

We’re going to put the affiliate links for that software in the description of this video; so you can help us in this channel to produce more content on Crypto taxes.




Thank you for watching this video, I hope you have received value out of this information. We just wanted to clarify that because a lot of people thought they had 2 years from the date they got the second deposit from the SBA, from the date they got the increase, no, it’s 24 months from the first, from the original, EIDL loan deposit.

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