Crypto Investors: Avoid 3 Easily Missed Tax Mistakes Next Year
Written by
Kristopher Kane
Edited by
Molly Sullivan
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If crypto were a celebrity, you could describe its journey as a surprising rise from obscurity to cult classic to mainstream appeal, and you could even go so far as to say it’s in danger of being overexposed.
Members of the first family even launched their own meme coins earlier this year to decidedly mixed reactions. Now, everyone’s paying attention to cryptocurrencies — including the Internal Revenue Service.
Tax agencies worldwide are ramping up their abilities to track crypto transactions, and it’s happening right here at home, too. Crypto investors need to understand the tax liabilities of their favorite digital assets, because the government certainly does.
It’s not as easy to avoid scrutiny or keep your crypto activities, well, cryptic anymore, so you’ll want to be sure to pay any taxes you owe on your crypto gains. Here’s a look at three tax mistakes many crypto investors make that can lead to audits, penalties and other not-very-fun things.
Yes, State, Too
Even if you’re keeping kosher with the IRS, your state tax collector will want a word as well. Federal taxes aren’t your only liability. States and even some local jurisdictions have their own rules regarding cryptocurrency taxation, which can vary significantly.
Bad Capital Gains Math
Even someone with serious student loan debt and a bunch of degrees might have a hard time calculating capital gains and losses on their crypto transactions. The herding-cats cliche seems appropriate, considering the frequency of trades serious investors make. Make sure you double-check your dates and decimal places, because mistakes here can really cost you.
Crypto investors often make mistakes when determining their cost basis, or the original price they paid for an asset. That figure is what’s used to calculate your profit or loss, and if it’s not accurate, you’re going to have a bad time. Under-report, and you underpay; over-report, and you pay more than you should. Choose neither.
Common cost basis errors include:
- Using the wrong acquisition date: Confusing the date of a transfer with the date of the original purchase can lead to an incorrect cost basis.
- Improper lot accounting: You might think all of your cryptocurrency exists in one big pile for tax purposes. It doesn’t. You have to track the specific units you sold — for instance, Bitcoin you bought last year as opposed to Bitcoin you bought 10 years ago.
- Not including transaction fees: For tax purposes, you should include purchase or sale fees in your cost basis.
- Improperly accounting for forks and airdrops: Don’t forget to track your cost basis after a hard fork or airdrop.
Failure To Report All Taxable Events
Last, but definitely not least, is the failure to report every taxable transaction. This is the big one when it comes to crypto tax blunders, and arguably the most expensive one to make. Many investors think that if they don’t cash out their crypto for fiat currency, it’s not a taxable event.
Guess what? Taxable events in 2025 include but are not limited to:
- Selling crypto for fiat currency: No brainer, right? The most obvious taxable event.
- Trading one cryptocurrency for another: You might like Bitcoin as much as you like Ethereum, but if you trade one for the other, that’s taxable.
- Using crypto to purchase goods or services: It doesn’t matter whether you’re buying a pizza or a Porsche. Spending Bitcoin in any way is a taxable event.
- Receiving crypto as income: Got paid in Bitcoin? Taxable income.
- Mining crypto: They even get you coming out of the mines. The fair market value of mined cryptocurrency at the time of its mining is considered taxable income.
- Staking rewards: Just like the lottery and game-show prizes, rewards earned from staking are considered taxable income.
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