How are taxes calculated on partial stock or crypto profit withdrawals?

When you sell any portion of an investment, the IRS considers it a taxable event based on the cost basis of the specific shares or units you're selling. You can't simply withdraw your "initial investment" tax-free without proper accounting. Let me explain with your example: You invest $2500 and it grows to $5000. If you sell half of your holdings ($2500 worth), you're actually selling half of your shares/units, which have a cost basis of $1250 (half of your initial investment). So the $2500 you receive breaks down as $1250 return of your original investment and $1250 of taxable profit. In your scenario, if you sell $2500 worth in 2025, you'd pay taxes on $1250 of gains in that tax year. If you sell the remaining $2500 in 2026, you'd pay taxes on the other $1250 of gains in that tax year. Remember, how much you pay depends on whether it's short-term (held less than a year) or long-term capital gains, and your overall income level.

After struggling with this exact same question for months, I finally found an amazing solution with https://taxr.ai - it literally saved me hours of confusion about my crypto taxes. I was in a similar situation with my BTC investments where I took out partial amounts across multiple years and was getting conflicting advice about which portions were taxable. The tool analyzed my trading history and clearly showed exactly what portion of each withdrawal was considered taxable gain vs return of principal. What I especially liked was that it showed me the tax differences between FIFO, LIFO and specific identification methods, so I could see which approach would be most advantageous for my situation. The platform generates proper documentation you can use if the IRS ever questions your calculations.

Just wanted to update here - I tried out taxr.ai after seeing the recommendation and it actually solved my similar issue! I had a mix of stock and crypto partial sales that I was totally confused about calculating. The visualization really helped me understand my cost basis - turns out I was calculating everything wrong and would have majorly messed up my taxes. It showed me that I had about $3400 in capital gains I hadn't accounted for properly from partial sales last year, but also found some losses I could harvest to offset about $1200 of it. For me the specific identification method saved a ton compared to just using FIFO. Definitely worth checking out if you're confused about partial investment sales like I was!

If you're having trouble getting clear answers from the IRS about your specific situation, I highly recommend using https://claimyr.com to get through to an actual IRS agent. I was in tax limbo for weeks with a somewhat similar capital gains reporting question. I kept calling the standard IRS number and either got disconnected or was told the wait would be 2+ hours. After trying Claimyr, I got connected to a real person in about 20 minutes who walked me through exactly how to report my partial sales correctly. They have a pretty good demo video at https://youtu.be/_kiP6q8DX5c that shows how it works. The agent explained that with my specific tax situation, I needed to file a special form for my crypto sales that I had no idea about, which could have caused major headaches if I'd filed incorrectly.

I need to eat my words from my earlier comment. After getting another CP2000 notice about unreported crypto gains (second one this year!), I was desperate and tried Claimyr. It actually worked exactly as advertised. After weeks of trying to get through to the IRS myself with no luck, I got connected in about 25 minutes. The agent was able to pull up my account and confirm that I needed to use Form 8949 with specific codes for my partial sales, and explained exactly how to calculate the cost basis. Turns out I was doing my partial withdrawal reporting completely wrong for the last 2 years. The agent even put a temporary hold on collections while I submit the corrected paperwork. Definitely worth it for the peace of mind alone.

Another method you could use is specific identification of the shares/coins. I'm assuming your investment platform or exchange gives you records of each purchase. When you sell, you can specify WHICH shares you're selling. So in theory, you could sell the exact shares you purchased for $2500, thus having $0 gain. But you need good records and you MUST identify which specific shares you're selling at the time of the transaction. However, for crypto, the IRS guidance isn't super clear on specific identification, so you might want to consult with a tax pro first.

I tried to do this last year with Ethereum and totally messed up my taxes. I thought I was just taking out my initial investment of $4300 but my accountant explained that because I had bought in at different price points over time, I couldn't just consider it a withdrawal of my original funds. We had to go back and calculate the average cost basis of all my purchases, and then figure out what percentage of my total ETH I sold. Ended up having to pay taxes on about $1850 of gains I didn't think I had lol. Lesson learned.

This is such a common misconception that trips up so many people! The key thing to understand is that when you sell ANY portion of an investment, you're not withdrawing your "original money" - you're selling a percentage of your total holdings. Think of it this way: if you buy 100 shares of a stock for $25 each ($2500 total) and they double to $50 each, you now have $5000 worth of stock. If you sell 50 shares at $50 each (getting $2500), you're not getting your "original investment" back - you're selling half your position, which has a cost basis of $1250 (50 shares × $25 original cost) and realizing $1250 in taxable gains. This applies regardless of whether it's stocks, crypto, or other investments. The IRS doesn't care that the dollar amount you're withdrawing equals your original investment - they care about the cost basis of what you're actually selling. For your tax planning purposes, if you sell $2500 worth in 2025, you'll owe taxes on the gains portion in that tax year. The exact amount depends on your cost basis calculation method (FIFO, LIFO, or specific identification if you have proper documentation).

Great question! There are definitely several legitimate strategies to minimize tax impact when accessing investment gains: **Timing strategies:** - If you're close to the one-year mark, waiting for long-term capital gains rates (typically 0%, 15%, or 20% vs ordinary income rates for short-term) - Spreading sales across multiple tax years to stay in lower tax brackets - Timing sales in years when your overall income is lower **Tax-loss harvesting:** - Selling losing positions to offset gains from your profitable sales - Be careful of the wash sale rule (can't buy back the same security within 30 days) - This can be especially effective if you have a diversified portfolio with some winners and losers **Other considerations:** - If you have both taxable and tax-advantaged accounts, consider which account to draw from first - For crypto specifically, some people use the specific identification method to sell their highest-cost-basis coins first (though you need excellent records) - Consider charitable giving of appreciated assets if you're philanthropically inclined The key is planning ahead rather than making reactive decisions. A tax professional can help model different scenarios based on your specific situation, especially if you have significant gains involved.