Tax reporting can be daunting, but PayPal is on a mission to make reporting cryptocurrency taxes as seamless as possible.

The information provided by PayPal is not intended to be and should not be construed as tax advice. You should consult your tax advisor regarding which cost basis method is appropriate for your specific situation.

Am I required to file taxes on my crypto?

Yes, the IRS now asks all taxpayers if they are engaged in virtual currency activity on the front page of their tax return.

How is cryptocurrency taxed?

In the U.S. cryptocurrency is taxed as property, which is a capital asset. Similar to more traditional stocks and equities, every taxable disposition will have a resulting gain or loss and must be reported on an IRS 8949 tax form.

Starting in 2020, the IRS added a question to the personal federal income tax form (1040) asking taxpayers, “at any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

When answered “Yes”, the IRS would look for a Form 8949 filed by the taxpayer to report capital gain/loss for virtual currency transactions.

If the taxpayer fails to report their cryptocurrency taxes, they may be subject to fines as penalties. Fortunately, similar to the sale of stock, 26 U.S. Code § 1211 of the Internal Revenue Code provides relief in the form of a deduction for losses on capital assets.

How do I file my crypto taxes?

PayPal provides its users with supplemental materials detailing all taxable dispositions for the year. These documents detail the transaction level activity needed to complete your IRS 8949, which includes date acquired, date disposed, cost basis (included for user convenience), proceeds, and the resulting gain or loss. These supplemental materials can be directly transposed onto your IRS 8949.

If you have crypto assets outside of PayPal’s platform and subsequently disposed of the assets, PayPal will not have visibility into your information, and it is, therefore, your responsibility to track and report such information.