After a relatively quiet few years following a short-lived surge in 2017, bitcoin rose again in late 2020, finishing the year with a single coin worth just shy of $30,000.
The blistering rally prompted many investors to invest in the cryptocurrency for the first time, while others who had been holding onto their bitcoin for some time took advantage of the token’s exploding price to sell some of their holdings for a profit.
But with Tax Day looming, some users will come face-to-face with the fact that they now owe taxes on those gains. Depending on when you bought and sold your bitcoin — as well as other factors, such as your income — you could be on the hook to pay.
Here’s what you need to know about reporting crypto profits on your 2020 tax return.
The IRS classifies virtual currencies as property. What does that mean?
Under U.S. tax law, bitcoin and other cryptocurrencies are classified as property and subject to capital gains taxes. But you only owe taxes when those gains are realized.
Just because your Coinbase portfolio drastically grew in value last year doesn’t mean that you’ll be writing out a check to Uncle Sam come April. Similar to trading stocks, you only need to list gains you earn from bitcoin as income when you decide to sell.
“If you never sell your bitcoin, you never owe cash,” Ben Weiss, COO of CoinFlip, the largest Bitcoin ATM provider in the country, tells