Every method of converting cryptocurrency to fiat currency is a taxable event. The IRS does not distinguish between selling on Coinbase, using a Bitcoin ATM, spending through a crypto debit card, or conducting a peer-to-peer sale. The gain or loss is the same: sale price minus cost basis. The reporting obligation is the same: Form 8949 and Schedule D.

Exchange Sales

Selling crypto on a centralized exchange is the most straightforward off-ramp. The exchange reports the sale on Form 1099 (either 1099-B, 1099-MISC, or 1099-DA depending on the year and exchange). Your gain or loss is calculated on the difference between the sale price and your cost basis. The exchange may or may not report cost basis — you are responsible for tracking it regardless.

Bitcoin ATMs

Selling crypto through a Bitcoin ATM is a taxable sale. The ATM operator may or may not file information returns. The fees are typically high (5-15%), and the effective sale price after fees determines your proceeds. The IRS is aware that Bitcoin ATMs are used for cash transactions and has investigated ATM operators for Bank Secrecy Act compliance.

Crypto Debit Cards

Cards from Coinbase, Crypto.com, and others convert crypto to fiat at the point of sale. Every purchase is a taxable disposition of the crypto used. Buying a $5 coffee with Bitcoin that has appreciated triggers a capital gain. If your basis was $1 and the Bitcoin is worth $5 at the time of purchase, you have a $4 gain — on a coffee. Over hundreds of transactions, these micro-gains add up.

Peer-to-Peer Sales

Selling crypto directly to another person — through platforms like Paxful, LocalBitcoins, or in-person — is a taxable sale. No exchange reports the transaction. The absence of third-party reporting does not eliminate the reporting obligation. The IRS can discover peer-to-peer sales through blockchain analysis, bank deposit patterns, and examination of the buyer's records.

Getting It Right

If you have off-ramped crypto without reporting the sales, the correction process involves reconstructing transactions and filing amended or delinquent returns. Attorney Darrin T. Mish handles this process and resolves any resulting IRS liability. Free consultation.