Can You Buy and Sell Crypto in the Same Day?

It is entirely possible to buy and sell cryptocurrency within the same day. This practice, often referred to as day trading, involves rapid transactions to capitalize on short-term price movements in the volatile digital asset markets. Engaging in such frequent trading activities introduces financial and tax considerations for individuals.

Basics of Day Trading Cryptocurrency

Day trading cryptocurrency involves executing multiple buy and sell orders for digital assets within a single trading day, aiming to profit from small price fluctuations. Unlike traditional investments held for extended periods, day traders seek to capture gains from intraday volatility. This approach requires constant monitoring of market conditions and quick decision-making.

Most cryptocurrency exchanges facilitate rapid trading, providing necessary tools and liquidity. These platforms allow users to buy and sell digital assets multiple times daily without frequency restrictions. The operational speed and 24/7 nature of the crypto market enable continuous trading. Each transaction typically incurs fees, which can accumulate rapidly with high-frequency trading.

Taxation of Cryptocurrency Day Trading

Engaging in cryptocurrency day trading has direct tax implications, as each trade is generally considered a taxable event by tax authorities. The Internal Revenue Service (IRS) classifies cryptocurrency as property for tax purposes, meaning that when you sell, exchange, or dispose of it, any resulting gain or loss must be reported. This treatment is similar to how stocks and other capital assets are taxed.

For day traders, most transactions result in short-term capital gains or losses. A short-term capital gain or loss occurs when cryptocurrency is held for one year or less before being sold. Profit is calculated as the sales price minus the cost basis, including purchase price and fees.

Short-term capital gains are taxed at ordinary income tax rates, ranging from 10% to 37% depending on income. This is higher than long-term capital gains, which apply to assets held over one year and are taxed at preferential rates (0% to 20%).

Capital losses from day trading can offset capital gains. If total capital losses exceed gains, you can deduct up to $3,000 against ordinary income annually. Remaining losses can be carried forward to offset future capital gains.

Cryptocurrency traders currently benefit from the absence of wash sale rules. Unlike traditional securities, where losses are disallowed if the asset is repurchased within 30 days, crypto transactions are exempt. This allows traders to sell at a loss, claim it, and immediately repurchase the asset. However, legislative proposals suggest this exemption may change.

Essential Record Keeping for Crypto Traders

Maintaining meticulous records is important for cryptocurrency traders to accurately calculate gains and losses and comply with tax reporting obligations. Each transaction, whether a buy, sell, or exchange, generates a taxable event that requires specific data points for proper accounting. Without thorough documentation, it becomes difficult to determine the cost basis and sales proceeds for each asset, leading to potential inaccuracies in tax filings.

For every transaction, traders should record the acquisition date and time, cost basis (purchase price and fees), disposition date and time, and sales proceeds. Also note the quantity of cryptocurrency and the exchange used. This data is fundamental for calculating profit or loss for tax reporting. Traders can use spreadsheets or specialized cryptocurrency tax software, which often integrates with exchanges to automate data collection. Regularly exporting transaction histories is recommended to prevent data loss.

Reporting Crypto Transactions to Tax Authorities

Once all transaction data is meticulously recorded, the next step involves reporting these cryptocurrency activities to the tax authorities using specific forms. For most individuals engaged in cryptocurrency trading, the primary forms involved are Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D, Capital Gains and Losses. These forms are used to detail and summarize capital gains and losses from the disposal of property, including digital assets.

Form 8949 requires a detailed breakdown of each cryptocurrency transaction resulting in a sale or disposition. For each, list:
Description of the asset
Date acquired
Date sold
Sales price
Cost basis

Totals from Form 8949 transfer to Schedule D, which summarizes all capital gains and losses for the tax year, including crypto. Schedule D determines your overall net capital gain or loss. These forms are filed with your main income tax return, Form 1040. Tax software can assist by importing data and performing calculations, or forms can be completed manually.