What if I Didn’t Report Cryptocurrency on My Taxes?

Not reporting your cryptocurrency gains or losses will impact you in the same way that not reporting gains or losses from stocks affects you. In other words, if you have losses, you miss out on tax benefits, and if you have gains, you will incur penalties or other consequences due to failure to report income.

As of 2025, around one in five US adults is utilizing digital assets. What many Americans may not realize, however, is that they need to report cryptocurrency on their tax returns if they sell, use, or exchange it.

If you haven’t reported crypto, the good news is that there are ways to correct your mistake, resolve your situation, and get back in good standing with the IRS. Find out more about what happens when you don’t report cryptocurrency on your tax return and how to fix the mistake below. To get help, contact us at the Timothy S. Hart Law Group today.

Key Takeaways

• Cryptocurrency transactions (sales or other dispositions) must be reported on your tax returns.
• Cryptocurrency is currently treated as capital property (like stocks or bonds) rather than earned income by the IRS unless it is received as payment for services or goods.
• Failing to report your cryptocurrency gains could result in a forced IRS assessment, an adjustment of your previous tax return, and penalties on your account.
• Amending your return with the help of a tax professional can help you resolve your situation and get back in good standing with the IRS.

The Risk of Not Reporting Cryptocurrency

The biggest risk you face if you fail to report cryptocurrency on your tax returns is tax penalties until you address the situation. The penalties you might face vary depending on the extent of your reporting violation and the value of the cryptocurrency transactions you didn’t report.

Here’s what’s likely to happen:

• IRS Letter 6174 – The IRS sends this letter to people who have cryptocurrency accounts. The letter outlines the reporting requirements and tells you to adjust your tax return if needed. This letter does not necessarily mean that you have unreported crypto transactions, and you don’t need to respond to it if you don’t have any taxable transactions.
• IRS Letter 6174-A – If you don’t act, then the IRS will send Letter 6174-A, which is another reminder of the crypto reporting requirements and an alert that the IRS may take a closer look at your account. You also don’t need to respond to this notice.
• IRS Letter 6173 – This notice signifies a failure to meet tax filing and reporting obligations for cryptocurrency transactions. If you have unreported crypto, you should amend your return accordingly. Otherwise, contact the IRS and explain that you didn’t have any taxable crypto transactions.

At this point, your best bet may be to get in touch with a tax lawyer as soon as possible. Failing to address IRS Letter 6173 could result in the IRS assessing tax against you or, even worse, possibly referring your case to their criminal investigation division for prosecution or investigation.

Is not reporting crypto a crime?

In most cases, the IRS deals with unreported crypto by assessing tax and penalties against you. However, if the IRS believes that you didn’t report the crypto in a willful failure to avoid paying tax, the agency may refer your case to the Criminal Investigation division.

The consequences of criminal tax evasion are extremely steep. The maximum penalties you could face include financial penalties of up to $100,000 and up to five years in prison.

Criminal prosecution is rare, but the IRS will not hesitate to take this step if they feel you are willfully and intentionally avoiding reporting your cryptocurrency earnings and assets. In recent years, the IRS has paid special attention to cryptocurrency tax fraud because of the high number of people attempting to use digital assets to skirt tax laws.

Reporting Requirements for Cryptocurrency

According to the IRS, taxpayers are expected to report any cryptocurrency transactions on their IRS tax return. This includes any sales, exchanges, or other dispositions of cryptocurrency. Taxpayers should report these holdings as capital gains or losses. To ensure compliance, it’s generally recommended that you keep an accurate record of all your cryptocurrency transactions.

You should use Form 8949 to report any cryptocurrency sales on your individual income tax return. On this form, you’ll include the date you acquired the digital asset, the date you sold it, the price points at both times, and your net gain or loss. Then, you’ll want to record that calculation on Schedule D of Form 1040.

How do you calculate crypto gains or losses?

To calculate crypto gains or losses, subtract the crypto’s value on the day you got rid of it (realized value) from its value on the day you got it (basis)

For example, say that you bought crypto for $10,000 (basis) and you sold it for $25,000 (realized value). You report both of these numbers to show that you had a capital gain of $15,000. If you held the asset for less than a year, it’s a short-term capital gain, and if you held the crypto for over a year, it’s a long-term capital gain.

The same rule applies if you are given crypto and if you give it away. For example, say that your parents give you crypto worth $10,000. That’s your basis. Then, a year later, you give the crypto away to a friend. At this point, it’s worth $15,000. That’s its realized value. Even though you didn’t earn any money, you must report the disposition as a $5000 gain on your tax return.

Do you have to report crypto losses?

Yes, it’s equally as important to report your crypto losses as it is to report your crypto gains. Crypto losses can offset other capital gains or up to $3000 in earned income. Any unused losses can be rolled to future years.

What if you receive crypto as payment for goods or services?

Another important reporting requirement is that you must report any cryptocurrency you are given as payment for goods or services to the IRS as a part of your income. For example, say you run a graphic design business and you accept $1000 in crypto as payment from a client. Then, you should report that money as income on your business tax return – whether that’s a Schedule C, Form 1065, or Form 1120.

A failure to do this could cause your overall income levels to be incorrect in the eyes of the IRS, which is a big problem. The IRS uses your income level as a threshold to determine your tax bracket as well as to calculate your eligibility for certain deductions or tax credits. If your reported income level is wrong, then all other calculations might be wrong, too.

Utilizing Crypto Losses in Tax Filings

Many people purposefully sell assets that have lost money to offset capital gains or other income on their tax returns. This type of strategy is called tax-loss harvesting.

An advanced tax tip is that cryptocurrency losses are also not subject to the wash-sale rule. Under the wash sale rule, capital losses can’t be claimed on stocks and securities if the same stocks or securities are repurchased 30 days before or after the sale. Since cryptocurrency is considered a property and not a security, the rule doesn’t apply, and you can claim the capital losses even if you re-purchase the same type of crypto within 30 days of the sale.

Dealing with Unreported Cryptocurrency

Did you purchase, sell, or exchange cryptocurrency over the past few years and fail to report it? Did you receive cryptocurrency or a digital asset as payment for goods and services and forget to include it in a previous tax return?

Now that you know the facts surrounding the tax code, you can take the right action to correct your mistake. In general, the sooner you make an effort to resolve the situation, the more likely you are to be able to reduce IRS penalties and minimize the negative consequences of failing to report your cryptocurrency losses and gains.

Your first step will be to identify where you went wrong on your past year’s tax returns. If possible, then you’ll want to collect all the documentation you can that lists out your digital dealings. Then, you’ll want to consider filing an amended return. A tax attorney can help you amend your return and make payment arrangements if you owe any tax due to the changes.

If you’ve already received letters from the IRS about non-compliance, then you might want to talk to a tax attorney before filing your amended return. It might be wise to consider going through the voluntary disclosure program if you think your error is serious enough to be considered a criminal offense.

Special Considerations

One of the most important things you’ll need to consider is that cryptocurrency transactions fall into two categories – income and assets. If you receive digital currency as payment for goods and services, then you’ll report that as ordinary income. If you simply own or acquire cryptocurrency, then it’s treated as a financial asset. If you’re confused about these two categories and distinctions, then it’s best to talk to a tax attorney for more help.

What If I Didn’t Report Cryptocurrency on My Taxes?

If you didn’t report your cryptocurrency transactions on a past tax return, then it’s worth your time and effort to go back and correct the discrepancies. Being as accurate as possible is important to the IRS, and your compliance goes a long way! When the IRS sees that you are trying your best, they are more likely to work with you to minimize any penalties you could face.

Depending on your specific situation, ignoring the situation could have serious consequences. If and when the IRS discovers the unreported income, you could face collection efforts that derail your financial goals.

Frequently Asked Questions: Cryptocurrency and Taxes

If you have specific questions about your cryptocurrency and tax situation, then it might make the most sense to reach out to a tax resolution expert for direct answers. The right tax professional will be able to take into consideration your unique circumstances and all the facts surrounding your case, so their advice will be more reliable and accurate.

That said, we will provide some general answers to some of the most frequently asked questions about cryptocurrency and taxes below.

Are virtual payments considered income?

Yes, if you receive virtual cryptocurrency as payment for goods or services, then that should be treated as part of your income when you file your taxes. Employees who are paid with digital assets should report the value of those assets as wages. Independent contractors or business owners who are paid with digital assets should report the income on Schedule C (Form 1040) for sole props, Form 1065 for partnerships, or Form 1120 for corporations. A failure to report these types of digital transactions will be treated in the same way as failing to report other sources of income.

If you paid for business expenses with crypto, you can also account for those expenses in the same way as you do for other business expenses.

How do you calculate your gain or loss when paying for goods or services with cryptocurrency?

If you pay for something with crypto, you may have a capital gain or loss. To calculate that, you start with the value of the crypto on the day you bought it. Then, you subtract that from the value of the crypto on the day you used it to purchase something. The difference is your gain or loss.

What if you give crypto away?

You may also incur a gain or loss if you give crypto away as a gift. In this scenario, you also calculate the gain or loss by subtracting the value of the crypto on the day you gave it away from its value on the day you acquired it.

If you give away crypto as a donation to a qualified charity, you may be able to claim the value of the donated crypto as a charitable deduction on your tax return.

How do you determine a cryptocurrency’s fair market value?

If your cryptocurrency transaction was facilitated by a cryptocurrency exchange, then the fair market value is the amount that is recorded by the exchange for that transaction in U.S. dollars. If the value isn’t recorded, then the fair market value is the amount the cryptocurrency was trading for on the exchange at the date and time the transaction would’ve been recorded on the ledger.

The IRS accepts evidence of fair market value as indicated by an explorer value, or a blockchain explorer, that analyzes the value of various cryptocurrencies at an exact date or time. This method can be used when you’re otherwise unable to determine the value of your cryptocurrency.

Get Help With Unreported Crypto Today

If you’re not sure what your best move is, then we recommend reaching out to a tax resolution firm to help you find a personalized solution to your cryptocurrency tax problems. Here at the Law Firm of Timothy S. Hart Law Group, P.C., our team is prepared to help.

Schedule a case review with our team of tax resolution attorneys now by leaving your contact details on our online form. Or call us using the number on this page.