In the early days of the cryptocurrency craze, every Bitcoin trader diligently recorded their cost basis, logged their capital gains, and reported it all to the IRS.

Just kidding.

“Oh heck no,” says Ryan Losi, a CPA with accountants and tax planners Piascik in Richmond, Va.

Indeed, the whole crypto arena was something of a financial Wild West, with federal authorities scrambling to figure out how to treat it all for tax purposes.

Now, though, is a different story. In particular, you might notice a little question on this year’s tax forms, right under where you have to print your name and address:

“At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

“They’re laying the trap,” says Losi. “Then the hammer is going to come down.”

In other words, if you have been dabbling in Bitcoin, you may very well owe some taxes to Uncle Sam.

Cryptocurrency is treated as property, so in general terms, think of it like a stock: If you bought some and still own it, then there has been no taxable event, and you won’t owe anything on the transaction.

However, if you sold some—presumably at a profit, since Bitcoin has soared to levels of over $48,000, as of this writing—then you have realized gains, and those need to be reported.

“If you sold crypto at a profit and that money is going into your bank account, then you owe taxes,” says Ben Weiss, president of CoinFlip, the nation’s largest network of Bitcoin ATMs. “At this point the government is very aware of crypto cashouts, so don’t assume you can get away with it.”

Like other capital gains, they fall into short-term and long-term buckets, and the tax treatment is different. Short-term gains, where the cryptocurrency was held for under a year, are treated as ordinary income, which implies a range of possible rates up to 37%.

Long-term holdings of over a year are treated more favorably, at 0, or 15 or 20% depending on income level. That highest bracket only applies to those with annual income approaching half a million dollars a year, which won’t apply to the vast majority of filers.

If you have losses, you can write some of those off to offset other gains. The annual maximum for such writeoffs is $3,000, although losses beyond that amount could be carried forward to future years.

Paper trails

So what about keeping track of all this stuff? That’s where tax season can get trickier for crypto enthusiasts. If you bought and sold on the same platform, like Coinbase or Robinhood, then the documentation can be more straightforward.