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The IRS treats bitcoin and other crypto as property. So, each property transfer can trigger taxes. That can mean tax to the recipient, plus tax to the transferor. It is the latter that catches many people by surprise. The owners of bitcoin and other cryptocurrencies are responsible for paying taxes on transfers.
A key tax question on each transfer is the market value at the time of the transfer. With the wild swings in value that many crypto assets have experienced, that can be a frightening proposition. Some crypto investors resort to putting their crypto in legal entities such as corporations, LLCs or partnerships. These entities can face the same transfer issues, but it is usually possible to contribute the crypto to the entity without triggering taxes.
Then, the thought may be that reporting and accounting with a business entity may be easier. Inevitably, though, there are tough tax issues to address. Another avenue now being considered is a crypto trust. This is really just a trust that holds crypto assets. Trusts can be taxed in several different ways, depending on their type.
There are living trusts
