Digital assets have moved from niche experiment to trillion-dollar market, and tax authorities have taken notice. Large gaps between expected and collected tax revenue are increasingly linked to unreported digital asset activity.

As enforcement ramps up, understanding how these assets are taxed is no longer optional—it is essential risk management.

Digital Assets

“Digital asset” is a specific term in tax law, not a marketing label. In general, it refers to a digital representation of value that is recorded on a cryptographically secured distributed ledger, or similar technology, and that is not traditional cash. The focus is on how the asset is recorded and transferred, not just what it is called.

Key Asset Types

In practice, this category captures several familiar instruments. Cryptocurrencies such as widely used tokens are one example. Stablecoins that aim to track a reference value also qualify. Non-fungible tokens (NFTs), which represent unique digital rights or items, fall inside the definition as well. If the asset fits the characteristics, tax rules treat it as a digital asset, regardless of branding.

Federal Rules

For federal income tax purposes, digital assets are treated as property, not currency. That means longstanding property tax principles apply. Buying, selling, exchanging, or using a digital asset in a transaction can generate taxable gain or loss, just as with shares or other investment property. Holding period, cost basis, and character of income all matter.

Taxpayer Duties

Individual taxpayers now face a direct question on widely used federal income tax forms asking whether they dealt with digital assets during the year. This question must be answered “Yes” or “No” by every filer, even if there was no activity. A “Yes” response is triggered whenever certain digital asset events occur.

Taxable Events

Common examples include receiving digital assets as payment for goods or services, rewards, or awards; obtaining new tokens from mining, staking, or similar activities; or receiving assets from a hard fork. Taxable events also arise when digital assets are sold for money, exchanged for other assets, or used to pay for products or services.

Reporting Income

When a digital asset held as a capital asset is sold, traded, or otherwise disposed of, the resulting gain or loss is calculated and reported much like a share sale. Taxpayers generally use Form 8949 to compute the gain or loss and then carry the totals to Schedule D. This ensures digital asset gains are captured alongside other investments.

Business Use

If digital assets are received as compensation for services, that income is treated like wages, fees, or business revenue, depending on the context. Similarly, if digital assets are held for sale to customers in the ordinary course of a trade or business, the resulting income is treated as ordinary business income and reported on the relevant business schedules, not as investment gain.

Broker Reporting

The compliance burden does not end with taxpayers. Lawmakers have expanded broker information reporting rules to include digital assets. Regulations under Internal Revenue Code section 6045 require certain U.S. custodial brokers to file a new form—Form 1099-DA—reporting proceeds from specified digital asset sales and exchanges carried out for customers.

Who Is a Broker

For these purposes, a broker is broadly defined as a business that regularly stands ready to execute sales for others. This now reaches many digital asset intermediaries, including U.S. trading platforms, payment processors handling digital asset transactions, hosted wallet providers, digital asset kiosks, and certain real estate reporting persons when property is paid for with digital assets.

Timelines and Relief

Under the phased implementation, brokers will generally begin reporting gross proceeds from covered digital asset sales on or after January 1, 2025. Basis reporting applies to certain transactions from January 1, 2026 onward, but only for assets acquired from and held with the same broker from that date. Transitional guidance and limited penalty relief apply for early years as systems and processes are built.

Global Coordination

Digital assets move easily across borders, so tax enforcement is aligning internationally. To coordinate with non-U.S. rules, tax authorities are implementing a Crypto-Asset Reporting Framework (CARF) developed by the Organisation for Economic Co-operation and Development. This framework supports automatic exchange of digital asset transaction data between participating jurisdictions.

Non-U.S. Brokers

Under this approach, non-U.S. brokers will report information about U.S. customers to the U.S. using CARF-aligned standards. In return, the U.S. will share data on covered transactions of foreign persons executed through U.S. brokers with countries that have adopted the framework. For taxpayers, this means cross-border activity is increasingly visible to multiple tax authorities.

State Tax Issues

Federal rules are only part of the picture. At the state level, sales tax treatment of digital assets used in transactions is still developing. Some states that have provided guidance treat digital assets like cash when used to pay for goods or services, applying sales tax in the same way as if money were used.

Divergent Approaches

Other states have indicated that certain digital currency transactions are not subject to specific state-level taxes, at least for now. The result is a patchwork of approaches that can differ significantly by jurisdiction. Businesses accepting digital assets and individuals engaging in frequent transactions need to check local rules rather than assuming federal treatment applies automatically.

Staying Compliant

Given the pace of regulatory change, digital asset users benefit from disciplined recordkeeping and up-to-date research. Tracking acquisition dates, cost basis, transaction details, and counterparties is crucial for accurate reporting. Tax professionals increasingly rely on specialist research platforms, practice tools, and dedicated guidance to stay aligned with evolving rules at the federal, state, and international levels.

Conclusion

Digital assets may be new, but the tax obligations around them are very real. They are treated as property, trigger familiar income and gain rules, and are now subject to expanding reporting from both taxpayers and brokers, supported by international data sharing and emerging state guidance. As activity grows, are existing systems and records strong enough to withstand scrutiny in the next filing season?