Jumping into the world of cryptocurrency is exciting—but when tax season arrives, things can get tricky fast. Cryptocurrency isn’t like cash—it’s treated as property, and each buy, sell, trade, or swap could be a taxable event.
1. How Crypto Is Taxed
United States 🇺🇸
- The IRS treats crypto as property, like stocks or real estate.
- Taxable events include selling crypto, trading one coin for another, or buying goods with crypto.
- Gains are split into:
- Short-term (held ≤1 year): taxed at ordinary income rates (10–37%)
- Long-term (held >1 year): taxed at 0–20% based on income
- Short-term (held ≤1 year): taxed at ordinary income rates (10–37%)
- Transaction fees count too—you add buy fees to cost basis and subtract sell fees from proceeds.
- Income crypto—like staking, mining, airdrops—is treated as ordinary income, based on fair market value at receipt.
Canada 🇨🇦
- The CRA treats crypto as a commodity.
- Capital gains: only 50% of the gain is included in taxable income.
- Business income (mining, trading as a business) is 100% taxable .
- Mining, staking, and airdrops count as income—taxed at your marginal rate.
United Kingdom 🇬🇧
- Crypto is treated as an asset—capital gains apply, not separate short/long differences .
- £6,000 annual capital gains allowance (reducing to £3,000 in 2025). Gains above that taxed at 10–20% based on income level .
- Mining or staking is ordinary income, taxed between 20-45%.
2. Taxable Events You Should Know
- Selling crypto → results in capital gain or loss
- Trading BTC to ETH → taxable disposal of the first asset
- Paying with crypto → same as selling it
- Crypto income (mining, staking, airdrops) → ordinary income at current value
- Transferring between your wallets → not taxable, unless fees apply
- Forks (like Bitcoin → Bitcoin Cash) → new coins from forks are taxable income
- Soft forks (rebrand) → no taxable event
- DeFi actions: often taxable—swapping LP tokens, withdrawing liquidity may count as disposals
3. IRS Changes for 2025
- Form 1099-DA rolls out in 2025 for reporting crypto gross proceeds; in 2026 it’ll include cost basis.
- That means your broker (e.g., Coinbase, Kraken) must send these forms—and so must you.
- Crypto question now on Form 1040—must check box if you used digital assets .
- The OECD’s Crypto-Asset Reporting Framework (CARF) rolls globally in 2026—shared cross-border info.
4. Why Reporting Matters
- IRS scrutiny is increasing—crypto non-reporters face big civil and criminal fines.
- Even small transactions must be reported—retail gains can add up.
- Backup withholding starts in 2026 if your 1099-DA isn’t accurate or missing.
5. Tracking Cost Basis & Records
- Track dates, amounts, cost basis, fees for every crypto transaction.
- Use FIFO or specific identification methods in the US; Canada uses adjusted cost basis (ACB).
- Use crypto tax software like CoinLedger, TokenTax, Koinly to automate gathering and calculations.
6. How to Report on Taxes
For US filers:
- Fill Form 8949 & Schedule D for gains/losses.
- Report staking/mining/airdrops as income on Schedule 1.
- File Form 1040 and check the crypto activity box.
For Canada filers:
- Report 50% capital gains on Schedule 3; staking/mining on T1 income lines.
- Deadline is April 30, 2025 for 2024 returns.
For UK filers:
- Declare gains above the annual allowance via Self Assessment; report mining/staking as self-employment income.
7. Using Crypto Losses to Save on Taxes
- In the US, you can use crypto losses to offset gains and up to $3,000 of income—then carry forward the rest .
- Canada also allows losses (capital or business income) to offset future gains.
- The UK applies capital losses only against future capital gains. �quote:
“Your capital losses are deducted from your capital gains… no relief for losses on small transactions”.
8. Special Situations
Mining & Staking
- US: fair market value at receipt is taxable income; then any gain/loss on disposal is taxable .
- Canada: 100% of mining/staking income is included in income, plus capital gains/losses on disposal.
- UK: income tax applies to the value received; capital gains tax applies when selling .
Airdrops & Forks
- Airdrops: treated as ordinary income at receipt value .
- Forks: new coins are taxable upon receipt unless considered a soft fork.
DeFi & Loans
- Borrowing against crypto generally isn’t taxable, but swaps and liquidity moves may be seen as taxable disposals—err on the side of reporting.
NFTs
- NFTs are taxed as crypto: sale is capital gain event; creation/sale is income .
9. Tips for Stress-Free Crypto Tax
- Use tax software (CoinLedger, TokenTax, Koinly)
- Match your 1099-DA from exchanges
- Choose one lot accounting method consistently
- Claim all fees to lower gains
- Document all income events (mining, staking, airdrops)
- Harvest losses strategically in losing years
- Consult a crypto-savvy tax advisor
- Stay on top of IRS/broker updates for 2025 and beyond
10. Worst Penalties — and How to Avoid Them
- Failure to report can lead to fines up to $100k and even jail for fraud .
- Underreporting income is a red flag for audits .
- Keep clean paper trails, match your broker statements, and file honestly—don’t rely on IRS staffing cuts.
Summary Table
| Event | US Tax Treatment | Canada | UK |
| Sell crypto | Short-/long-term capital gains | 50% of gain included | All gains taxed above allowance |
| Trade crypto | Disposal event, capital gains | Same as sale | Same |
| Spend crypto | Disposal event | Same | Same |
| Mining/staking | Ordinary income + gains on sale | Ordinary income + gains | Income + capital gains |
| Airdrops/forks | Ordinary income | Income | Income |
| DeFi swaps | Likely capital gains (disposal) | Capital gains | Capital gains |
| Wallet transfers | Non-taxable (fees may apply) | Non-taxable | Non-taxable |
Source : thepumumedia.com