Trading and "Like Kind" Exchanges
In the past, some traders have taken the position that they don't need to pay taxes on transactions from one kind of cryptocurrency to another- for example trading Bitcoin for Ethereum. They considered this a "Like kind" trade, and have felt they need only pay taxes when they cash out to fiat.
However, most tax professionals who deal with cryptocurrencies believe that the IRS will not accept these transactions as valid 1031 exchanges, and that all trades are potentially taxable.
As an example, suppose you had bought a bitcoin at $1,000. Then later you trade 0.5 BTC for 10 Eth, which is valued at $300/Eth at the time you made the trade. You have just incurred a net gain of $2,500. If this were your only trade, you would owe taxes on those $2,500.
However, you don't necessarily owe taxes on every winning trade if you also have some losing trades. You owe taxes if you have a net increase in dollar value of your cryptocurrencies at the end of the year- the net sum of your winning and losing trades.
One other thing to note is that most crypto-trading will fall under "short term capital gains" tax. Short term capital gains apply to trades done with assets you have held for less than a year. This tax rate is whatever normal tax bracket your income puts you in (including income from crypto trading).
Long term capital gains apply to crypto tokens (or stocks, bonds etc) that you have held for over a year. This is a fixed rate of 15% for most taxpayers, and 20% for those in the highest tax bracket. Thus, it is to your advantage to hodl for at least 1 year unless you are in a low tax bracket.
Please seek advice from a tax professional for more information about your specific situation. See our resources page for qualified professionals.