Crypto Taxes: Your Payday is Coming

Published March 23rd, 2022

Reading Time: 9 minutes

Crypto Taxes Your Payday Is Coming

Written by:

Josh Bennett, CFP®, EA
Zoe Network Advisor

You probably haven’t discussed crypto taxes with your friends, and if you have, you know that the tax implications of crypto aren’t really clear. 

The Untouched Topic: Crypto Taxes 

Have you been paying attention to the rise of the crypto markets? If not, you might be living under a rock. Over the past several years, cryptocurrencies have been an essential (and hyper trending) aspect of the investing world. 

When people talk about crypto, the conversations focus on tech disruption, “massive gains,” and Elon Musk. Most of the time, you’re basing your conversation topics on theories of volatility and trading. The topic that remains untouched? Crypto taxes.
Taxes are the least “sexy” among crypto topics but among the most impactful to your gains. You probably haven’t discussed crypto taxes with your friends, and if you have, you know that the tax implications of crypto aren’t really clear.

In this article, I’ll highlight a few rules and guidelines created by the IRS to help you navigate what you should expect from new tax codes as these regulations continue to emerge. First, let’s imagine a scenario: 

You’re an innovative investor and hold a portfolio with crypto. You’re new(ish) to the DIY investing world, or just new to the crypto world. And although you wish it was just as easy making a profit and leaving it there… you know tax season is right around the corner and you’ll have to pay their cut. How much will you have to pay? We’ll break it down below.   

How Do Crypto Taxes Work?

Many of the investments in the crypto space have taxation principles that are similar but not necessarily based on precedent. There are some misconceptions of crypto taxation, types of transactions, and issues with crypto. We’ll walk through them all. 

Misconceptions of Crypto Taxes

First and foremost, let’s knock out some common misconceptions. 

1. Yes, crypto is taxable. 

The IRS looks at crypto similarly to the way it views stocks. But the easiest way to think of it is that cryptocurrencies are considered property. Just like other property, if you make money off of it, then those gains become taxable upon sale of the property.

2. You can’t hide from the IRS.

Because crypto uses secure and private distributed Ledger, people think the IRS can’t track it. So they don’t need to report it. In other words, people think they can hide their transactions in order to not get taxed for them. 

This is a completely wrong mentality. The beauty of crypto is that everything happens on the ledger, therefore, every transaction you make lives on that ledger. That does not mean that the IRS doesn’t have the tools to track it. On the contrary, the IRS has made it very clear that they’re putting cryptocurrency taxes as a priority this year. They’re after crypto fraud, and not long from having a software that tracks your tax implications… probably better than you can. 

By not paying taxes or at least even attempting to pay taxes on a best effort-basis to be compliant, you are likely going to be on the IRS’s radar (and not in a good way). 

How is Crypto Really Taxed? 


For an event to be taxable, you don’t have to just go from a cryptocurrency back to US Dollars. Every transaction you make is taxable. For example, if you gained in Bitcoin, and then traded it for Ethereum, that is a taxable transaction. You don’t need to cash it out in order for it to be taxable. In the view of the IRS, whenever you are trading one coin for another, those are potentially taxable events.

Rule of thumb: Any change in the underlying currency is a taxable event.


If you buy things with Bitcoin, you are liquidating Bitcoin to purchase an item, so you are selling property in exchange for another item. Selling property is taxable, so you will owe a tax bill when you buy things with any crypto that has a capital gain. 

Remember, in the eyes of the IRS; Crypto is a property, not a currency. If you use crypto as a currency, it doesn’t change the underlying assumptions that it gets taxed as property. 


If you’re not familiar with Staking, Staking is similar to a CD at a more traditional bank. You put up your coin as collateral, and you earn interest in the form of more tokens (or an alternate coin in some cases). The ongoing assumption is that staking gets taxed as income. However, there has been recent traction in lower tax courts that may alter how staking is taxed. The argument is that interest earned via staking is only taxable upon the sale of the token. 

Issues in Crypto Taxes 

Capital Losses: 

Many investors assume that 9 out of 10 investments will go to zero. But like venture capital investing, you’re aiming for the one that goes up 1000x. You should be wary that in crypto there are many fraud or “rug pull” situations. 

As of right now, you can only claim capital losses when you can trade out of a token at a loss. What happens to the coins where your coin becomes illiquid or loses everything? Many people believe that loss becomes a tax deduction. This is mistaken, it’s not a deduction and the IRS has been very clear about that. 

As of the TCJA, no capital losses due to theft, rug pulls, fraud…etc. can be used as a tax deduction. Often in these situations, you cannot sell your crypto, so your money ends up lost in thin air without the ability to recoup any of your losses. 

Tracking Your Taxes: 

We’ve covered that many investors have no idea what their tax situation currently is. Tracking taxes is a big issue. Although there are software solutions that help financial advisors, tax professionals, and end-users, they aren’t perfect (yet). 

Getting the integrations and CSV exports from multiple sources and wallets can leave a jumbled mess. You need to be highly experienced to match transactions correctly. The software helps a ton, but again, not bulletproof. 

Koinly, Zenledger, are others that offer tracking services and some can collaborate directly with your tax professional. 

Cryptocurrency Should Be Your #1 Tax Priority

The digital asset world is changing, and taxation is changing along with it. The most important thing to understand is that crypto is taxable! Not only is it taxable, but the taxation of your digital coins is much more complex than you might think. You’re not taxed only when you cash out to USD, you’re potentially taxed with every transaction. There are misconceptions, types of transactions, and issues when it comes to cryptocurrency. 

If you can’t understand, track, manage and stay compliant with your crypto, reach out to a tax professional who can help you. 

If you do, be careful… we’re all pretty new to the crypto world. Some professionals are educated in the topic and understand how it works, others try to take advantage of the current market need, but don’t have genuine expertise in the space. 

Make sure you are vetting any professional you work with, whether on the financial planning side or tax side of crypto. Most importantly, make your taxes a priority if you’re investing in crypto.

This blog is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

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