Crypto tax refers to the tax obligations and reporting requirements that arise from owning, trading, earning, and disposing of cryptocurrencies and other digital assets. In the United States, the Internal Revenue Service (IRS) classifies cryptocurrency as property rather than currency, meaning that virtually every transaction involving crypto, including selling for fiat, trading one token for another, using crypto to purchase goods or services, and receiving crypto as income, can trigger a taxable event subject to capital gains tax, ordinary income tax, or both.
The tax treatment of cryptocurrency is complex and depends on the nature of the transaction, the holding period, and the taxpayer’s circumstances. When a taxpayer sells or exchanges crypto held for more than one year, any gains are taxed at long-term capital gains rates (0%, 15%, or 20% in the U.S., depending on income). Gains on crypto held for one year or less are taxed at short-term capital gains rates, which are equivalent to ordinary income tax rates (up to 37% federally). Mining income, staking rewards, airdrops, hard fork proceeds, and crypto received as payment for goods or services are generally treated as ordinary income, taxable at the fair market value at the time of receipt.
Calculating crypto taxes is notoriously complex due to the high volume of transactions typical of active traders, the need to track cost basis across multiple wallets and exchanges, the occurrence of taxable events that users may not realize are taxable (such as token swaps in DeFi), and the global nature of crypto markets that can involve multiple jurisdictions’ tax rules. Specialized crypto tax software like CoinTracker, Koinly, and TaxBit has emerged to help individuals and businesses navigate these complexities, aggregating transaction data from exchanges and wallets, applying cost basis methods, and generating tax forms compliant with IRS and international requirements.
2009 to 2013: In Bitcoin’s early years, the tax implications of cryptocurrency were largely ignored by both taxpayers and authorities. Most Bitcoin users were technologists and hobbyists transacting in small amounts, and no government had issued formal tax guidance on digital assets.
2014: The IRS issues Notice 2014-21, the first detailed U.S. tax guidance on cryptocurrency. This key document establishes that virtual currency is treated as property for federal tax purposes, that general tax principles applicable to property transactions apply to crypto, and that mining generates ordinary income. This notice remains the foundational document for U.S. crypto tax law.
2017: The bull run and ICO boom bring millions of new participants into crypto markets, many of whom had never considered the tax implications. The IRS serves a “John Doe” summons on Coinbase seeking the identities of U.S. customers who transacted more than $20,000, signaling that it is serious about crypto tax enforcement. The Tax Cuts and Jobs Act, signed in December 2017, eliminates the like-kind exchange provision (Section 1031) for property other than real estate starting in 2018, closing a loophole some crypto traders had attempted to use to defer taxes on crypto-to-crypto trades.
2019: The IRS adds a question about cryptocurrency transactions to the front page of Form 1040, asking whether the taxpayer received, sold, sent, exchanged, or otherwise acquired any financial interest in virtual currency during the year. This made it virtually impossible for U.S. taxpayers to claim ignorance of their crypto tax obligations.
Late 2019 to 2020: The IRS issues Revenue Ruling 2019-24, providing specific guidance on the tax treatment of hard forks and airdrops. The ruling states that airdropped tokens are taxable as ordinary income at the time the taxpayer gains dominion and control over them.
2021: The Infrastructure Investment and Jobs Act introduces new crypto tax reporting requirements, expanding existing broker reporting rules under Sections 6045 and 6045A to require exchanges and other intermediaries to report customer transactions to the IRS on a new form. Implementation is phased in gradually over the following several tax years rather than taking effect immediately.
2023 to 2024: The Treasury and IRS propose, and then finalize, regulations defining who qualifies as a “broker” for crypto tax reporting purposes. Regulations covering custodial brokers, centralized exchanges, and similar platforms are finalized in mid-2024, requiring gross proceeds reporting on new Form 1099-DA starting with transactions from January 1, 2025. A separate set of regulations extending broker status to certain DeFi front-end operators and other noncustodial platforms is finalized in December 2024, generating significant controversy over its potential reach into decentralized platforms.
2025: Congress repeals the DeFi-specific broker reporting rule using the Congressional Review Act; the resolution passes both chambers with bipartisan support, and the repeal is signed into law in April 2025. The custodial broker reporting rules covering centralized exchanges remain in effect and are not affected by this repeal. Form 1099-DA reporting for gross proceeds begins for transactions occurring in 2025, with basis reporting requirements phased in for transactions from 2026 onward.
2024 to 2026: Multiple countries refine their crypto tax frameworks. The UK’s HMRC updates its crypto guidance, Germany reaffirms its tax-free treatment of crypto held for over one year, and Portugal ends its previous zero-tax policy for short-term crypto gains. Congress and the Treasury continue to discuss extending the wash sale rule to digital assets, though as of 2026 no such legislation has been enacted, and crypto remains outside the wash sale rule that applies to stocks and securities.
“Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties, and interest.” IRS Notice 2014-21.
In Simple Terms
Crypto tax works like selling baseball cards or stocks. If you bought a Bitcoin for $10,000 and sold it for $50,000, you owe taxes on the $40,000 profit, just like you would if you bought a stock low and sold it high. The IRS does not see crypto as money; it sees it as property, like a house or a collectible.
Think of every crypto trade like selling one item and buying another at a flea market. Even if you trade Bitcoin directly for Ethereum without ever touching dollars, the IRS treats it as if you sold Bitcoin for cash and then used that cash to buy Ethereum. Both the “sale” of Bitcoin and the “purchase” of Ethereum have tax implications.
Imagine keeping a detailed diary of every single purchase, sale, and trade you make at a stock exchange, except you might use five different stock exchanges and three different brokerage accounts, and some of them do not send you any tax paperwork. That is the challenge of crypto tax: tracking every transaction across every platform and wallet to calculate what you owe.
Getting paid in crypto is like getting paid in gold bars. If your employer hands you a gold bar worth $5,000, you owe income tax on $5,000; the same applies to receiving Bitcoin, staking rewards, mining income, or airdropped tokens. The IRS taxes the fair market value at the moment you receive it.
Tax-loss harvesting in crypto is like returning a losing investment to the store for a “refund” on your taxes. If you bought a token at $10,000 and it dropped to $3,000, you can sell it to realize the $7,000 loss and use that loss to offset gains from your profitable trades, potentially saving thousands in taxes.
Important: Not reporting crypto taxes is not a gray area; it is tax evasion. The IRS has invested heavily in blockchain analytics tools and partnerships with firms like Chainalysis to trace unreported crypto income. Penalties for non-compliance can include back taxes, interest, substantial fines (up to 75% of the underpayment for fraud), and criminal prosecution in severe cases.
Taxable events: Selling crypto for fiat, trading one crypto for another, using crypto to purchase goods or services, receiving mining income, staking rewards, airdrops, hard fork tokens, crypto earned as wages or freelance payment, and interest earned from lending protocols
Non-taxable events: Buying crypto with fiat (acquisition only), transferring crypto between your own wallets, gifting crypto (below the gift tax threshold), and donating crypto to a qualified charity (which may generate a deduction)
The distinction matters enormously; many users trigger taxable events unknowingly, especially in DeFi swaps and liquidity pool transactions
Cost Basis Methods
FIFO (First In, First Out): Assumes the earliest purchased units are sold first. This is the IRS default method and often results in higher taxable gains during bull markets, since the oldest (cheapest) units are matched with current (higher) sale prices
LIFO (Last In, First Out): Assumes the most recently purchased units are sold first. Can reduce tax liability in rising markets because the most recently purchased (most expensive) units are matched against sale prices
Specific Identification: Allows the taxpayer to choose exactly which units (lots) are being sold. Provides maximum flexibility for tax optimization but requires meticulous record-keeping with specific lot tracking across every transaction
HIFO (Highest In, First Out): A variation of specific identification that sells the most expensive lots first, minimizing gains. Popular with crypto tax software
How Crypto Tax Calculation Works
The taxpayer gathers transaction history from all exchanges, wallets, and DeFi protocols (via API connections, CSV exports, or blockchain address scanning)
Crypto tax software aggregates all transactions into a unified ledger, identifying acquisitions, dispositions, and income events
The software applies the chosen cost basis method (FIFO, LIFO, or Specific ID) to match each sale or trade with its corresponding purchase cost
For each taxable disposition, the software calculates the gain or loss as sale price minus cost basis minus fees
Gains are classified as short-term (held one year or less) or long-term (held more than one year) based on the holding period between acquisition and disposition
Income events (mining, staking, airdrops, wages) are calculated at fair market value at the time of receipt
The software generates IRS-compliant tax forms, typically Form 8949 (Sales and Dispositions of Capital Assets) and Schedule D (Capital Gains and Losses), or the applicable forms for the taxpayer’s jurisdiction
The taxpayer or their accountant reviews the calculations and files with their annual tax return
Tax-Loss Harvesting
Crypto tax-loss harvesting involves selling underperforming assets to realize capital losses that can offset capital gains from profitable trades
In the U.S., up to $3,000 of net capital losses can offset ordinary income per year, with excess losses carried forward to future tax years
Unlike stocks, cryptocurrency is not currently subject to the wash sale rule, which prohibits repurchasing a “substantially identical” security within 30 days of selling at a loss. That rule applies to stock and securities under current law, and crypto is classified as property rather than a security, so it falls outside the rule for now. Congress has repeatedly proposed extending wash sale treatment to digital assets, but as of 2026 no such legislation has passed
Because this remains only a proposal, strategic harvesting near year-end can still meaningfully reduce annual tax liability under current law, though taxpayers should watch for potential future legislative changes
Advantages & Disadvantages
Advantages
Disadvantages
Long-Term Rate Benefit: Crypto held for over one year qualifies for favorable long-term capital gains rates (0% to 20%), significantly lower than ordinary income rates
Tracking Complexity: Managing cost basis across dozens of wallets, exchanges, and DeFi protocols is extremely time-consuming and error-prone
Tax-Loss Harvesting: Crypto’s volatility creates frequent opportunities to realize losses and offset gains, reducing overall tax burden, and the wash sale rule does not currently apply to crypto
Every Trade is Taxable: Unlike stocks held in tax-advantaged accounts (401(k), IRA), virtually every crypto-to-crypto swap triggers a taxable event
Donation Deductions: Donating appreciated crypto to charity allows the donor to deduct the full fair market value and avoid capital gains tax entirely
Cost Basis Flexibility: The ability to choose between FIFO, LIFO, and Specific Identification methods allows taxpayers to optimize their tax outcomes
High-Frequency Trading Burden: Active traders may have thousands of taxable events per year, each requiring individual gain or loss calculation
Loss Carryforward: Excess capital losses can be carried forward indefinitely to offset gains in future years, providing long-term tax planning flexibility
Fair Market Value Disputes: Determining the exact fair market value of illiquid tokens, NFTs, or airdropped tokens at the moment of receipt can be subjective
Software Ecosystem: A strong ecosystem of crypto tax software (CoinTracker, Koinly, TaxBit, CoinLedger) automates much of the calculation process
Global Complexity: Taxpayers who use foreign exchanges or earn crypto income across jurisdictions face overlapping reporting requirements and potential double taxation
Staking Income Recognition: Pending legal challenges (Jarrett v. United States) could eventually result in staking rewards being taxed only upon sale rather than upon receipt, potentially reducing tax burden
Retroactive Enforcement: The IRS can audit crypto returns for several years, or indefinitely in cases of fraud, creating long-term liability for past filing errors
Emerging Tax-Advantaged Options: Self-directed IRAs and 401(k)s that permit crypto investments allow some tax-deferred or tax-free growth
Reporting Burden: Form 8949 requires listing every individual transaction, potentially creating tax returns with hundreds or thousands of line items
Risk Management
Audit and Enforcement Risk:
The IRS has made crypto tax enforcement a priority, investing in blockchain analytics tools and partnerships with firms like Chainalysis, hiring dedicated crypto agents, and including the crypto question on Form 1040
Mitigation: file accurately and completely every year; retain detailed transaction records for at least seven years (a standard professional recommendation, though the IRS’s statute of limitations is typically three years); use reputable crypto tax software; work with a CPA experienced in crypto taxation
The IRS’s voluntary disclosure program may offer reduced penalties for taxpayers who proactively correct past filing errors
Cost Basis Tracking Risk:
Losing track of purchase prices, especially for crypto acquired years ago on defunct exchanges or through peer-to-peer transactions, can lead to incorrect tax calculations
Mitigation: export and securely store transaction histories from every exchange immediately rather than waiting until tax season; use crypto tax software that connects via API to automatically import trades; keep records of wallet-to-wallet transfers with timestamps
If cost basis is truly unknown, the IRS default is a zero cost basis, meaning 100% of the proceeds would be taxable as gain
Regulatory Change Risk:
Tax laws and reporting requirements for crypto are evolving; rules that apply today may change by next tax year
Mitigation: stay informed through IRS announcements, crypto tax news outlets, and professional tax advisors; review guidance updates annually before filing
Recent changes worth watching include expanded Form 1099-DA broker reporting, the 2025 repeal of the DeFi-specific broker rule, and ongoing proposals (not yet law) to extend the wash sale rule to digital assets
International Double-Taxation Risk:
Taxpayers who trade on foreign exchanges or live in multiple jurisdictions may be subject to tax in more than one country on the same crypto gains
Mitigation: utilize foreign tax credits available under bilateral tax treaties; consult with international tax professionals; structure activities to minimize double-taxation exposure
Some countries, such as Germany with its one-year holding exemption, or the UAE with zero capital gains tax, offer more favorable treatment that can be leveraged with proper tax residency planning
Crypto tax is one of the most universally dreaded topics in the cryptocurrency community. The phrase “tax season” triggers anxiety across crypto Twitter (now X), with annual waves of posts asking variations of how to calculate taxes on thousands of DeFi transactions. The complexity of crypto tax has spawned an entire sub-industry of specialized accountants, tax attorneys, and software platforms.
The cultural tension around crypto tax reflects a deeper philosophical divide. Many early Bitcoin adopters were drawn to cryptocurrency specifically for its potential to exist outside government financial systems, and paying taxes on crypto gains feels antithetical to that vision. The pseudonymous nature of blockchain creates a temptation to underreport, a temptation the IRS has aggressively countered with its Form 1040 question, John Doe summonses to exchanges, and significant investment in blockchain surveillance tools.
The Jarrett v. United States case, filed in 2021, became a cultural rallying point. Joshua and Jessica Jarrett sued the IRS for a refund on taxes paid on Tezos staking rewards, arguing that newly created tokens from staking are analogous to newly created property, like a farmer growing crops, and should only be taxed upon sale rather than upon receipt. The case resonated deeply with the staking community, since the IRS’s current position, taxing staking rewards as income upon receipt, means stakers owe taxes even if they never sell their rewards and even if the token’s value subsequently crashes.
The joke “in this house we don’t talk about our DeFi taxes” reflects the widespread anxiety around the near-impossibility of accurately tracking tax obligations across complex DeFi activities like liquidity provision, yield farming, leveraged lending, and cross-chain bridging. Many DeFi users genuinely have no idea how their activities should be taxed, and guidance in this area remains limited.
Portugal’s period as a crypto tax haven, with zero tax on crypto gains for individuals prior to 2023, created a mini-migration of crypto professionals relocating to Lisbon, a trend that partly reversed when Portugal introduced a capital gains tax on crypto held less than one year. Similarly, Dubai’s zero-tax environment has attracted many crypto entrepreneurs and traders, influencing the global distribution of crypto talent and capital.
Real-World Examples
Active Trader Filing with CoinTracker
Scenario: A U.S.-based crypto trader executed approximately 2,400 trades across Coinbase, Kraken, and Uniswap during a recent tax year, involving spot trades, DeFi swaps, and staking on multiple protocols.
Implementation: The trader connected their exchange accounts and wallet addresses to CoinTracker via API. CoinTracker imported all transactions, identified taxable events, applied the HIFO (Highest In, First Out) cost basis method to minimize gains, and generated Form 8949 with all 2,400 dispositions listed. The software also identified $12,000 in unrealized losses eligible for tax-loss harvesting before year-end.
Outcome: CoinTracker calculated total capital gains of $47,000 ($18,000 long-term, $29,000 short-term) and $8,500 in staking income. After harvesting the $12,000 in losses, the trader’s net taxable gain dropped to $35,000. The automated process took approximately two hours, compared to the estimated 200-plus hours it would have taken manually.
Mining Operation Income Reporting
Scenario: A small Bitcoin mining operation running 50 ASIC miners generated approximately 3.2 BTC over a recent tax year, received in daily mining pool payouts averaging 0.0088 BTC per day.
Implementation: Each daily payout constituted ordinary income taxable at the fair market value of Bitcoin on the date received. The miner used Koinly to import mining pool records, automatically tagging each payout as mining income. The software calculated the USD value of each payout based on the Bitcoin price at the time of receipt. The miner also deducted business expenses, including electricity ($42,000), equipment depreciation ($28,000), and facility rent ($18,000), against mining income.
Outcome: Gross mining income totaled approximately $185,000 (3.2 BTC at an average price of roughly $57,800). After deducting $88,000 in business expenses, net taxable mining income was $97,000. When the miner later sold 1.5 BTC at $68,000, the cost basis was the fair market value at receipt, resulting in additional capital gains on the appreciation.
Tax-Loss Harvesting During a Market Downturn
Scenario: An investor held a diversified crypto portfolio that included ETH (purchased at $3,800), SOL (purchased at $170), and AVAX (purchased at $35). During a market downturn, ETH dropped to $2,200, SOL to $85, and AVAX to $15.
Implementation: The investor’s tax advisor recommended selling all three positions to realize approximately $42,000 in combined capital losses. The investor sold and immediately repurchased the same assets, which is permitted under current law since the wash sale rule does not apply to crypto. The $42,000 in losses offset $42,000 in gains from profitable trades made earlier in the year, and an additional $3,000 in excess losses was applied against ordinary income.
Outcome: The tax-loss harvest saved the investor approximately $9,200 in federal taxes (assuming a blended 22% rate). The investor maintained their portfolio positions with a new, lower cost basis, and the strategy was entirely legal. If Congress eventually extends the wash sale rule to digital assets, a similar immediate repurchase could disallow the loss under a future version of this strategy, so investors who rely heavily on this approach should watch legislative developments.
Airdrop Tax Obligations
Scenario: A DeFi user who had interacted with the Uniswap protocol received 400 UNI tokens in September 2020 via the retroactive airdrop, valued at approximately $1,200 at the time of receipt ($3.00 per UNI).
Implementation: Under IRS Revenue Ruling 2019-24, the airdrop constituted ordinary income of $1,200, taxable in the 2020 tax year. The user’s cost basis in the 400 UNI tokens was set at $1,200 ($3.00 per token). When the user sold 200 UNI tokens in February 2021 at $20.00 per token ($4,000 total), they realized a capital gain of $3,400 ($4,000 sale price minus $600 cost basis for 200 tokens), taxed as short-term capital gains since the holding period was less than one year.
Outcome: The total tax liability from the airdrop was $1,200 in ordinary income (2020) plus $3,400 in short-term capital gains (2021). Many airdrop recipients failed to report the initial income event, creating potential audit exposure. The example illustrates how a single airdrop can generate two separate tax obligations: income upon receipt and capital gains upon sale.
Comparison Table
Feature
U.S. (IRS)
United Kingdom (HMRC)
Germany (BZSt)
Portugal (AT)
Japan (NTA)
UAE
Classification
Property
Crypto-asset (capital gains)
Private money
Movable property (post-2023)
Miscellaneous income
No income tax
Capital Gains Rate
0 to 20% (long-term) / up to 37% (short-term)
10 to 20% (above the annual allowance)
0% if held over 1 year; up to 45% if under 1 year
28% if held under 1 year; 0% if over 1 year
15 to 55% (progressive)
0%
Mining/Staking Tax
Ordinary income at receipt
Income tax at receipt
Income tax at receipt
Potentially taxable
Income tax at receipt
0%
Cost Basis Methods
FIFO, LIFO, Specific ID
Share pooling (average cost)
FIFO (default)
FIFO
Moving average
N/A
Reporting Threshold
All transactions (Form 1040 question)
All dispositions (Self Assessment)
All if held under 1 year
Gains above a small threshold
All transactions
N/A
Tax-Loss Harvesting
Yes (wash sale rule does not currently apply to crypto)
Yes (bed and breakfasting rules apply)
Yes (offset against gains)
Limited
Limited
N/A
Annual Exemption
None (standard deduction only)
Annual CGT allowance
Small threshold if held under 1 year
None
Small miscellaneous income exemption
Full exemption
Related Terms
Capital Gains Tax: A tax on the profit realized from the sale of an asset, applicable to cryptocurrency dispositions where the sale price exceeds the cost basis
Cost Basis: The original value of a crypto asset for tax purposes, typically the purchase price plus any fees, used to calculate gains or losses upon disposition
FIFO (First In, First Out): An accounting method that assumes the earliest purchased crypto units are sold first, commonly used as the default method for crypto tax calculation
Tax-Loss Harvesting: A strategy of selling underperforming crypto assets to realize capital losses that offset gains from profitable trades, reducing overall tax liability
IRS Form 8949: The IRS form used to report sales and dispositions of capital assets, including cryptocurrency trades, with each transaction listed individually
Wash Sale Rule: A regulation that disallows a tax deduction for a loss on a security if an identical security is repurchased within 30 days. It currently applies to stocks and securities but not to cryptocurrency, though Congress has repeatedly proposed extending it to digital assets
Staking Rewards: Cryptocurrency earned by participating in proof-of-stake consensus, treated as ordinary income at fair market value upon receipt by most tax authorities
Airdrop: Free distribution of cryptocurrency tokens to wallet holders, treated as ordinary income by the IRS at the time the recipient gains dominion and control
CoinTracker: A leading cryptocurrency tax software platform that aggregates transactions from exchanges and wallets, calculates gains and losses, and generates tax forms
Koinly: A crypto tax reporting platform supporting a large number of integrations with exchanges, wallets, and blockchains, popular for its DeFi transaction tracking capabilities
Crypto Regulation: The broader framework of laws and rules governing cryptocurrency activities, which directly shapes how crypto transactions are taxed and reported
Q: Do I have to pay taxes every time I trade one cryptocurrency for another? Yes, in the United States and most other jurisdictions, swapping one cryptocurrency for another (for example, trading Bitcoin for Ethereum) is a taxable event. The IRS treats it as if you sold the first crypto for its fair market value in USD and then purchased the second crypto. You must calculate and report the gain or loss on the “sale” of the first cryptocurrency.
Q: How are staking rewards taxed? The IRS currently treats staking rewards as ordinary income, taxable at their fair market value at the moment you receive them and gain dominion and control. This means you owe income tax even if you never sell the staked tokens. The Jarrett v. United States case is challenging this position, arguing that staking creates new property that should only be taxed upon sale, but the IRS has not changed its stance as of 2026.
Q: What happens if I lost money on crypto? Can I deduct the losses? Yes, capital losses from crypto can offset capital gains dollar-for-dollar. If your net losses exceed your gains, you can deduct up to $3,000 of excess losses against ordinary income per year for U.S. taxpayers. Any remaining losses carry forward to future tax years indefinitely. This makes tax-loss harvesting a valuable strategy during market downturns.
Q: Do I owe taxes on crypto I received as an airdrop? Yes, under IRS Revenue Ruling 2019-24, airdropped tokens are taxable as ordinary income at their fair market value when you gain dominion and control over them. This typically means the moment the tokens appear in your wallet and you have the ability to transfer, sell, or otherwise use them. Your cost basis in the airdropped tokens equals the amount you reported as income.
Q: What is the best cost basis method for crypto taxes? There is no universally best method; it depends on your trading pattern and goals. FIFO is the IRS default and simplest to apply. HIFO (Highest In, First Out) typically minimizes taxable gains by selling the most expensive lots first. Specific Identification provides maximum flexibility but requires meticulous record-keeping. Consult a tax professional to determine which method minimizes your liability based on your specific portfolio.
Q: Does the wash sale rule apply to crypto? Not currently. The wash sale rule under Section 1091 applies to stocks and securities, and the IRS treats cryptocurrency as property rather than a security, so the rule does not automatically apply to spot crypto trades. This means you can generally sell crypto at a loss and immediately repurchase it while still claiming the loss. Congress has proposed extending the wash sale rule to digital assets multiple times, including in prior budget proposals, but as of 2026 no such legislation has passed. This is an area worth monitoring, since a future law could close this gap.
Q: How does crypto tax work in Germany compared to the U.S.? Germany treats cryptocurrency as “private money” and offers a significant advantage: crypto held for more than one year is completely tax-free regardless of the gain amount. Gains on crypto held for less than one year are taxed at ordinary income rates (up to 45%) but only if total gains exceed a small annual exemption. This makes Germany one of the more favorable jurisdictions for long-term crypto holders. The U.S., by contrast, taxes all gains regardless of holding period, though long-term rates (0% to 20%) are lower than short-term rates.
Q: What records do I need to keep for crypto tax purposes? You should maintain records of the date and time of every acquisition and disposition, the fair market value at the time of each transaction, the amount of crypto involved, transaction fees paid, the purpose of each transaction (trade, payment, gift, and so on), and the wallet addresses and exchange accounts involved. The IRS recommends keeping these records for at least seven years as a conservative estimate, with the official statute of limitations typically three years. Crypto tax software can automate much of this record-keeping by connecting to exchange APIs and scanning blockchain addresses.
Sources
IRS Notice 2014-21, Virtual Currency Guidance
IRS Revenue Ruling 2019-24, Tax Treatment of Hard Forks and Airdrops
IRS Frequently Asked Questions on Virtual Currency Transactions
IRS, Final Regulations and Related Guidance for Reporting by Brokers on Sales and Exchanges of Digital Assets
Federal Register, Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales (CRA repeal)
