Crypto Taxes Explained: Don't Let the IRS Ruin Your Gains 💀

Crypto taxes explained, in human language: if you touched crypto in any way that made you feel like a genius, there’s a non-zero chance it also made you taxable. And yes, “I never cashed out to dollars” is not the invincibility shield people think it is.

This post is your no-panic map: what’s usually taxable, what’s usually not, why your wallet history is basically a diary, and how to stop Future You from having a main-character breakdown in April.

The one idea that makes crypto taxes make sense

Most countries (and the U.S. very aggressively) treat crypto like property, not like “fun internet points.”

Translation: every time you dispose of crypto (sell it, trade it, spend it), you might have a capital gain or loss.

A gain/loss is basically:

> What you got − what you originally paid (your cost basis) = gain/loss

If you remember that, you’re already ahead of 80% of Crypto Twitter.

Crypto taxes 101: what’s usually taxable vs not

Let’s do the “is the IRS watching me?” speedrun.

Usually taxable events

These are the big ones that create a tax event in many jurisdictions:

• Selling crypto for fiat (BTC → USD, ETH → EUR)

Often not taxable (but still track it)

• Buying crypto with fiat (USD → BTC)

If you’re still learning wallets, read: /blog/crypto-wallet-guide — it’ll save you from both hackers and spreadsheet pain later.

“I didn’t cash out” — why that doesn’t save you

Here’s the classic:

> “Bro I never sold to dollars. I just swapped ETH into some meme coin and then into USDC. No taxes.”

Bestie… that’s literally multiple disposals.

Crypto-to-crypto trades are usually treated like:

1) you sold ETH (tax event)

2) you bought the meme coin (new cost basis)

3) you sold meme coin into USDC (tax event)

If you want a clean foundation on what coins are doing and why, check:

• /blog/what-is-bitcoin

Cost basis: the most important phrase you’ll ignore until it’s too late

Example:

• You buy 1 ETH for ,500.

Simple… until you bought ETH 47 times across 3 exchanges, moved it around, bridged it, and half of it came from “random” airdrops you forgot existed.

FIFO, LIFO, Specific ID… aka choosing your tax destiny

When you have multiple lots (multiple buys at different prices), you need a method for which coins you sold.

Common approaches:

• FIFO (First In, First Out): oldest coins sold first

You don’t need to pick a method right now to read this post, but you do need to understand that your method changes your taxes.

Crypto taxes explained for DeFi: the “depends” zone

DeFi is where taxation goes from “math homework” to “philosophy seminar with receipts.”

If you need a refresher on what DeFi even is, start here: /blog/what-is-defi.

Swaps (DEX trades)

If you swap tokens on a DEX (Uniswap, Raydium, whatever), it’s usually treated like a trade:

• Token A → Token B = taxable disposal of Token A

Providing liquidity (LP)

You deposit two tokens into a pool and get LP tokens back. Depending on rules where you live, this may be treated as:

• swapping into a new asset (LP token) (taxable), and later

And yes, you can end up with gains/losses just from price changes and impermanent loss. Finance truly said “plot twist.”

Yield farming / reward tokens

Reward tokens (like emissions) are often treated as income when received, valued at the fair market price at that moment.

That means you can owe tax on tokens you never sold. Pain.

Borrowing and lending

In many places, borrowing against crypto isn’t itself a taxable sale (you’re taking a loan, not selling). But:

• liquidation events can trigger sales

If your strategy is “borrow stablecoins, farm yields, pray,” please keep records like your life depends on it.

NFTs: yes, they have taxes too

NFTs can trigger the same general rules:

• Buying with crypto: you’re spending crypto → taxable disposal

And no, “it was just a JPEG” is not a legal argument.

Airdrops and rewards: free money that comes with homework

Airdrops feel like airdropped serotonin. But tax systems often see:

1) Income at receipt (based on market value when you get control)

2) Capital gain/loss when you sell (based on value at receipt as your basis)

So if you got an airdrop at .00 and sold at /bin/bash.20, you might still have income + a capital loss depending on local rules.

Crypto is the only place where “free money” can make you owe money.

The IRS (and other tax agencies) aren’t guessing anymore

You don’t have to believe in Big Brother. Big Brother believes in you.

Tax agencies increasingly get data from:

• centralized exchanges (KYC, account records)

If you used a CEX, read /blog/cex-vs-dex (when it exists) so you understand what you’re trading for convenience.

“Okay… what do I actually DO?” A sane crypto tax checklist

Crypto taxes explained is cool, but you need action items. Here’s the non-chaotic plan.

1) Stop mixing your life funds with your degen funds

If you do everything from one wallet, your transaction history becomes an unreadable novel.

Use separate wallets:

• one for long-term holdings

Wallet hygiene also helps security. Again: /blog/crypto-wallet-guide.

2) Track every trade, not just “cash outs”

Make sure your records include:

• date/time

Gas fees can matter. Sometimes they increase basis; sometimes they’re deductible expenses; sometimes they’re part of disposal calculations. It’s complicated, but ignoring fees is how your math gets cursed.

3) Don’t wait until April to discover you did 9,000 transactions

The earlier you reconcile, the easier it is:

• missing cost basis becomes fixable

4) Learn the difference between short-term and long-term gains

In many systems (including the U.S.), holding longer can reduce the rate.

• Short-term = held ~1 year or less (often taxed like regular income)

So yes, your habit of speedrunning trades might be speedrunning your tax rate.

5) Use a crypto tax tool… but don’t outsource your brain

Tools can import exchange CSVs + on-chain activity and produce reports.

But you still need to:

• label transfers correctly (self-transfer vs sale)

The tool is a calculator. You are the adult supervision.

6) Consider an “oops fund” in stablecoins

If you’re actively trading, keep some liquidity set aside so taxes don’t force you to sell at the worst possible moment.

If you’re new to stablecoins, a beginner-friendly explainer is coming soon (/blog/stablecoins-101).

Common crypto tax mistakes (aka the top ways to get cooked)

Mistake #1: “I’ll just not report it”

I’m not your parent, but I am telling you this is the dumbest risk/reward trade in crypto.

Mistake #2: Losing track of cost basis

If you don’t know what you paid, you can’t correctly compute gains.

Some systems treat unknown basis as zero (meaning maximum taxable gain). That’s not a vibe.

Mistake #3: Treating bridges as trades by accident (or vice versa)

A bridge transfer is often just moving value across chains… but sometimes you receive a wrapped asset, sometimes it looks like a swap, sometimes you interact with a protocol token.

Label it wrong and your report goes feral.

Mistake #4: Ignoring spam tokens and dust

Wallets get random tokens dropped in. Sometimes they’re scams. Sometimes they have no price.

Don’t try to “claim” them, don’t interact with sketchy links, and make sure your tax tool doesn’t interpret them as free income at some ridiculous price.

Mini FAQ: crypto taxes explained in 30 seconds each

Do I owe taxes if I only bought and held?

Usually: no taxable event until you sell/trade/spend. But keep records of your purchases.

Do I owe taxes when I move crypto between my wallets?

Usually: no, if it’s truly your own wallets. But the records matter because you need to show it wasn’t a sale.

Are stablecoins taxable?

Trading into/out of stablecoins can be taxable (because you disposed of the original asset). Stablecoins themselves are still crypto assets.

What about losses?

Losses can often offset gains (rules vary). Keep them documented.

Can I just use DeFi and stay anonymous?

Even if you could, taxes aren’t a stealth game. Also, mixing “tax strategy” with “identity strategy” is how people end up with legal problems and hacked wallets.

Final thoughts: you don’t need to fear crypto taxes, you need receipts

Crypto taxes explained isn’t about becoming a spreadsheet goblin. It’s about:

• understanding which actions create taxable events

Do Future You a favor: export your exchange history, label your transfers, and stop pretending swaps don’t count just because they’re on-chain.

If you want more beginner-friendly foundations, start with:

• What Is Bitcoin? → /blog/what-is-bitcoin

And yes, we’ll be dropping more guides soon — including stablecoins, staking, and security. Because this space is fun… but it’s more fun when the IRS isn’t jump-scaring you.