What is considered a taxable event in relation to cryptocurrency?

A taxable event in relation to cryptocurrency occurs when there is a realization of gain or loss, which typically happens during a sale or exchange of cryptocurrency for cash or property. This means that when you sell cryptocurrency for fiat currency, exchange it for another cryptocurrency, or use it to purchase goods or services, the transaction must be reported for tax purposes. The Internal Revenue Service (IRS) views such transactions as capital gains or losses, necessitating appropriate reporting on your tax return.

Holding cryptocurrency, performing airdrops, or simply buying cryptocurrency do not constitute taxable events. Holding does not trigger a tax liability as there is no sale or exchange. Airdrops may have implications, but simply receiving them may not necessarily result in immediate tax liability until the cryptocurrency is sold or exchanged. Buying cryptocurrency also does not create a taxable event, as you have not realized any gain or loss at that moment; the tax implication arises when you engage in transactions involving that cryptocurrency. Therefore, the sale or exchange of the cryptocurrency is the clear taxable event recognized under current tax law.