Crypto Tax Planning Playbook

1 / 7

Selling, swapping, or spending cryptocurrency generally creates a taxable event subject to capital gains tax
Mining, staking rewards, and airdrops are typically treated as ordinary income when received
Short-term gains (held one year or less) are generally taxed at ordinary income rates; long-term gains may qualify for lower rates
The IRS requires reporting of all crypto transactions, and Form 1040 includes a specific question about digital asset activity

Under current law, the wash sale rule that applies to securities does not explicitly apply to cryptocurrency, though this may change
This may allow investors to sell at a loss and immediately repurchase the same asset to realize the tax loss
Crypto's year-round volatility can create harvesting opportunities throughout the calendar year, not just in December
Tracking cost basis accurately across multiple exchanges is essential for properly calculating and documenting losses

FIFO (first in, first out), LIFO (last in, first out), and HIFO (highest in, first out) are common lot identification methods
Specific identification allows taxpayers to choose which lots to sell, potentially optimizing the tax outcome
The choice of lot selection method can significantly impact the size of realized gains or losses on a given transaction
It is generally advisable to choose and document a consistent method before executing sales, and consult a tax advisor on the best approach

Staking rewards are generally treated as ordinary income, though the exact timing of recognition (when received vs. when claimed) remains debated
Providing liquidity to pools may create taxable events when tokens are deposited or withdrawn, depending on the protocol structure
Yield farming income is typically treated as ordinary income at fair market value when received or claimed
Wrapping and unwrapping tokens (e.g., ETH to WETH) may or may not be taxable events — consult a tax advisor for current guidance

NFTs may potentially be classified as collectibles, which could subject long-term gains to a maximum 28% federal tax rate
Tax treatment may differ depending on whether you are the creator, buyer, or seller of an NFT
Royalty income received by NFT creators is generally treated as ordinary income when received
The cost basis of a minted NFT typically includes gas fees and other direct costs of creation

Donating appreciated cryptocurrency held over one year to a qualified charity may allow the donor to avoid capital gains tax on the appreciation
The deduction is generally based on fair market value at the time of donation for assets held more than one year
Form 8283 is typically required for non-cash charitable contributions exceeding $5,000, along with a qualified appraisal in many cases
Not all charities accept cryptocurrency directly — donor-advised funds may serve as an intermediary for crypto donations

The IRS Form 1040 includes a mandatory question about digital asset transactions, and failing to answer accurately may carry penalties
Tracking transactions across multiple wallets, exchanges, and DeFi protocols can be challenging — specialized software tools may help
Taxpayers with accounts on foreign exchanges may have FBAR or FATCA reporting obligations depending on account values
Non-reporting or underreporting of crypto transactions may result in penalties and interest — consult a tax advisor to ensure compliance

Try Our Free Tools

Related Topics