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Crypto and tax, explained

Most people who owe crypto tax do not know which of their transactions counted, and the ones who do know usually cannot prove what they paid. Here is what the IRS treats as a taxable event, what it does not, and why the records are the hard part. This covers United States federal tax only, and not state tax.

What counts as a taxable event

The IRS treats digital assets as property rather than currency, which is the root of everything below: disposing of property is an event with a gain or a loss attached, even when no dollars are involved. These are the transactions the IRS lists as reportable.

Selling for currency. You sell bitcoin for dollars.
Exchanging for other assets or goods. You trade ether for solana, or you pay for a laptop in bitcoin.
Receiving digital assets as payment. A client pays you in stablecoins for a month of work.
Mining. You receive coins for validating transactions.
Staking. Your staked position pays you rewards.
Airdrops. A protocol distributes tokens to your wallet.
Paying transfer fees in digital assets. The fee itself is a disposal of the asset you paid it with.

The one most people get wrong: the swap. Trading one coin directly for another is a disposal of the first coin, and the gain or loss on it is reportable, even though no dollars moved and nothing reached your bank account. If you bought ether at one price and swapped it for solana later, that swap closed your ether position for tax purposes at its value on the day you made it. A year of active swapping can produce a long list of reportable events without a single withdrawal.

What does not count

Three common situations create nothing to report.

Merely holding. Buying and sitting on an asset is not an event, however far its price moves.
Buying with regular currency. Spending dollars to acquire crypto is not a disposal of the crypto.
Moving between wallets you own. Sending coins from an exchange account to your own hardware wallet is a transfer of your own property between your own addresses, not a sale.

That last one matters if you have been putting off self-custody because you assumed moving coins would trigger a bill. It does not. What you should keep is the record of the move, so that a later sale can be traced back to what you originally paid. If you are weighing that move, we explain the mechanics in cold storage, explained.

Why the records fall apart

Knowing the rules is the easy half. The hard half is cost basis: what you paid for the thing you just sold. Gains are the difference between the two, so a disposal without a basis is a number you cannot compute and cannot defend.

Basis goes missing for ordinary reasons. History gets scattered across several exchanges and a few wallets that have no idea the others exist. Accounts get closed and their export files go with them. A coin bought on one platform, moved to a wallet, swapped for something else and sold somewhere third has a basis that lives on the first platform and a sale that happens on the last, with nothing connecting them.

Broker reporting is closing part of that gap, in two stages. Under the final broker regulations, gross proceeds reporting applies to transactions on or after January 1, 2025, and basis reporting applies to transactions on or after January 1, 2026. The practical consequence for anyone filing on older activity is that a form may report what you sold for without reporting what you paid, and the burden of establishing basis stays with you.

What you have to keep, and where it goes

The IRS expects records showing the type of asset, the date and time of each transaction, the number of units, the fair market value in U.S. dollars at the time of the transaction, and the basis. That is the whole list, and it is worth keeping contemporaneously, because reconstructing a fair market value for a specific hour eighteen months later is the part people find impossible.

Two paths lead out of those records. Disposals are reported on Form 8949, which carries to Schedule D. Income is different: staking rewards are ordinary income when you receive them, in the year you gain dominion and control over them, valued at fair market value at that moment, and reported on Schedule 1 line 8z.

Getting through it

There are two honest paths, and which one fits depends entirely on how much history you have.

If your activity is a handful of transactions on a single platform, do it by hand. Export the account history, line up each disposal against what you paid, and fill in the forms. Software would be overhead you do not need.

If your history runs across several exchanges and wallets, and especially if it includes swaps, this becomes a reconciliation problem rather than a filing problem. That is the category crypto tax software exists for: it imports history from exchanges and wallet addresses, matches disposals to acquisitions across platforms, applies a cost basis method, and produces the completed forms. CoinLedger is one option in that category. CoinLedger offers 10% off with code CRYPTOTAX10.

Try the software

We earn a commission if you sign up through this link. It costs you nothing extra. The discount is a genuine discount and it applies whether or not it earns us anything.

CoinLedger Imports exchange and wallet history, produces the forms Go to coinledger.io

Sources

This page is educational and covers United States federal tax only. It is not advice about your particular situation. If your position is complicated, talk to a tax professional who can look at your actual records.