If you’re a single filer earning under $40,400, or a married couple making under $80,800, you have a 0% capital gains rate for any sale of a cryptocurrency that’s been held for at least a year (long-term capital gains).

Now, if you sell a cryptocurrency at a loss, you can claim a capital loss deduction. If your yearly annual loses exceed yearly annual gains, you can deduct up to $3,300 per year. Any excessive losses beyond that can be carried over to future tax years.

The same logic applies to paychecks. If you receive payment in bitcoin or any other cryptocurrency, it’s counted as ordinary income.

If you’re an independent contractor and receive payment in the form of cryptocurrency, it will count as self-employment income.

The IRS ask specifically about cryptocurrency transactions on the first page of the 1040 this year. You have to mark “yes” if you received any cryptocurrency, purchased a cryptocurrency, traded a cryptocurrency, spent a cryptocurrency, etc. By checking “yes” on the 1040 form you’re acknowledging you had some sort of financial transaction with a cryptocurrency – but this doesn’t mean you will necessarily be taxed. You’re only taxed if you sold cryptocurrencies for a profit. If you simply bought a cryptocurrency and held it, without exchanging it for another cryptocurrency or selling it, then you are not taxed. It’s no different from a stock in that respect.

Contrary to above, you can check “no” regarding the IRS’ question on the 1040 form if you did have cryptocurrency transactions, but did not have a taxable event such as selling cryptocurrencies or receiving cryptocurrency in the form of payment. If you simply bought and held or transferred a cryptocurrency between wallets, there is no taxable event.

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