What's in the Crypto Tax Checklist
To help cryptocurrency investors and businesses prepare for these changes, Monaco CPA has developed a comprehensive 10-point compliance checklist. Certain crypto activities, such as selling, exchanging, or receiving crypto, are considered taxable events that may trigger tax obligations. You may owe taxes when you receive crypto as payment for services or employment, as the IRS considers this taxable income that must be reported. Charitable donations of crypto may also qualify as a tax deduction, further lowering your overall tax liability.
Here’s a preview of the key topics covered:
- The "Missing Basis" Problem
- The New Tracking Rules
- Smart Loss Harvesting
- Staking & DeFi Timing
- Charitable Donations of Crypto
- NFT Taxation and Collectibles
- State-Specific Considerations
For complex crypto tax situations, we recommend seeking professional tax advice or consulting a tax attorney to ensure compliance and optimize your crypto investments. A certified public accountant can also provide valuable guidance.
Why This Year Is Different
For many years, crypto taxation largely depended on the honor system. Investors reported their crypto transactions, capital gains, and income voluntarily, often without direct verification from the IRS. However, this dynamic is shifting dramatically. Beginning in 2025, the IRS will receive direct reports of gross proceeds from cryptocurrency sales through Form 1099-DA, issued by crypto exchanges and brokers. Using a crypto exchange can trigger specific tax reporting requirements, and some investors may consider crypto exchange-traded products (ETPs) as alternative investment vehicles, each with distinct tax implications. This enhanced reporting marks a new era of enforcement in the crypto space. While this may sound like an improvement in transparency, there is a critical caveat: brokers are not required to report your cost basis on Form 1099-DA for 2025 transactions—that requirement begins January 1, 2026. Cost basis—the original value of your crypto assets—is fundamental to accurately calculating capital gains and losses. Without this information, the IRS will know the gross sales amounts but not the basis used to offset gains. The danger is not that brokers will report "$0 basis"—rather, the basis field will be blank or marked "noncovered," shifting the entire burden of proof to you. This compliance gap can lead to IRS notices if your tax return does not properly report cost basis on Form 8949. Failing to correctly report your cost basis exposes you to a higher tax burden, as unreported gains may be treated as fully taxable income. This new environment demands meticulous record-keeping and wallet-by-wallet accounting to comply with IRS rules and avoid costly audits.
The "Missing Basis" Problem
Learn how to prepare for the new 1099-DA reporting and avoid IRS notices triggered by unreported income. For 2025 transactions, brokers will report gross proceeds but leave the cost basis field blank or marked “noncovered”—not $0. The IRS’s Automated Underreporter system may flag your return if you don’t properly reconcile these forms on Form 8949. We explain why relying on average cost methods may no longer suffice and how to track your cost basis accurately using the new wallet-by-wallet requirements. It’s essential to configure your tax software correctly for wallet-by-wallet tracking to ensure compliance with the latest IRS rules. A certified public accountant can help you navigate the new reporting requirements and avoid IRS notices.
The New Tracking Rules
Understand why the IRS is moving away from universal average cost accounting and requiring wallet-by-wallet tracking per Revenue Procedure 2024-28. Under 26 CFR §1.1012-1(j), you must now use specific identification for each wallet or account. Rev. Proc. 2024-28 provides a safe harbor allowing taxpayers to allocate existing aggregate basis among wallets as of January 1, 2025. This section guides you through the best practices for calculating gains and losses across multiple wallets and exchanges—and how to audit your tax software settings to ensure compliance. A certified public accountant can assist in reviewing your tracking methods and software settings for compliance with IRS rules.
Smart Loss Harvesting
Discover strategies to lock in tax losses while maintaining economic substance in your crypto portfolio. Proper tax-loss harvesting can offset crypto gains and reduce the amount of taxes you owe, but it requires careful execution.
⚠️ IMPORTANT: While the statutory wash sale rule (IRC §1091) does not technically apply to cryptocurrency, the IRS may challenge transactions under the Economic Substance Doctrine (IRC §7701(o)) if they lack meaningful economic purpose beyond tax savings. Tax experts and IRS officials have cautioned that aggressive loss-harvesting strategies—such as selling and immediately rebuying the identical asset—could invite scrutiny.
The Prudent Approach:
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Option A: Correlated Asset Swap — Sell the losing asset (e.g., Bitcoin) and immediately purchase a different but correlated asset (e.g., Ethereum). This maintains market exposure while changing your economic position.
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Option B: 30+ Day Wait — If you want to repurchase the identical asset, wait at least 30 days to mirror the equity wash sale window and demonstrate genuine market risk exposure.
You may owe taxes on crypto activities such as selling, trading, or earning digital assets. Crypto-related income is generally taxable when you sell, trade, or receive crypto as payment for goods or services, or earn rewards from staking, mining, or airdrops, which may also require you to file 1099 forms depending on your situation.
Consulting a certified public accountant can help you implement tax-loss harvesting strategies correctly and avoid IRS scrutiny.
Staking & DeFi Timing
Explore the “dominion and control” rule that affects income recognition for staking rewards and decentralized finance (DeFi) activities. Under Revenue Ruling 2023-14, staking rewards are taxable as ordinary income when you gain the ability to sell, transfer, or exchange the tokens—not necessarily when they’re generated by the protocol. Deferral Opportunity: If your rewards are subject to a protocol lock-up or unbonding period during which you cannot access them, income recognition may be deferred until the lock expires. For example, if you earn staking rewards on December 15 but face a 21-day unbonding period, you may not owe tax until January 5 when you gain actual control. Interest earned from staking or DeFi is subject to income tax and may be treated as ordinary income. Learn how timing your income recognition could defer some taxable income to 2026, optimizing your tax position. Additionally, receiving new coins from mining, airdrops, or forks is a taxable event and must be reported as income. A certified public accountant can help you determine the correct timing for income recognition and ensure accurate reporting.
Charitable Donations of Crypto
NEW SECTION: Donating appreciated cryptocurrency held for more than one year to a qualified charity can provide significant tax benefits—you can deduct the full fair market value and avoid capital gains tax on the appreciation.
⚠️ THE $5,000 QUALIFIED APPRAISAL RULE: If you donate more than $5,000 worth of cryptocurrency, the IRS requires a Qualified Appraisal (Form 8283, Section B) under IRC §170(f)(11)(C). This was explicitly confirmed in IRS Chief Counsel Advice 202302012. Exchange screenshots or price quotes are NOT sufficient for donations exceeding $5,000—cryptocurrency does not qualify as “publicly traded securities” under the appraisal exemption rules.
A certified public accountant can guide you through the appraisal process and ensure your donation is properly documented for tax purposes.
NFT Taxation and Collectibles
NEW SECTION: Not all digital assets are taxed equally. Under IRS Notice 2023-27, certain NFTs may be classified as “collectibles” based on a “look-through” analysis of the underlying right or asset.
The Impact: Collectibles are subject to a maximum long-term capital gains rate of 28%—significantly higher than the standard 20% cap that applies to most crypto. NFTs representing digital art, physical art ownership, gems, or rare collectibles may trigger this higher rate.
If you sold NFTs for significant gains in 2025, consult a crypto tax professional to determine whether the collectibles classification applies to your transactions.
A certified public accountant can help you assess whether your NFTs qualify as collectibles and ensure proper tax treatment.
State-Specific Considerations
⚠️ NEW JERSEY RESIDENTS: New Jersey has different rules for capital losses that many investors overlook:
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No $3,000 offset: Unlike federal rules, NJ does not allow you to deduct capital losses against ordinary income (wages, interest, etc.)
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No carryforward: NJ does not permit capital loss carryforwards to future years
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Losses only offset gains: In NJ, capital losses can only offset capital gains in the same tax year and category
What this means: A federal tax-loss harvesting strategy may provide significantly less benefit on your NJ state return. If you have substantial crypto losses but no crypto gains, those losses may be effectively “lost” for NJ tax purposes.
A certified public accountant familiar with your state's tax laws can help you navigate unique state-level crypto tax rules.
This checklist is an indispensable tool for anyone involved in cryptocurrency transactions, whether you are an active trader, miner, or long-term investor. It can also help you prepare for potential IRS audits and support audit defense if needed. For complex crypto tax situations, we recommend seeking professional tax advice or consulting a tax attorney to ensure compliance and optimize your crypto investments.
Why Monaco CPA?
Monaco CPA is not your typical tax firm. We are specialized crypto tax professionals with deep expertise in the nuances of cryptocurrency taxation, serving clients in New Jersey, New York, and nationwide. As active participants in the crypto community, we understand the complexities of DeFi, NFTs, staking, and other advanced crypto activities. Our founder, Gregory Monaco, CPA & MBA, leads a fully virtual CPA practice that combines modern technology with personalized service to deliver accurate, compliant, and strategic crypto tax preparation and advisory services.
We understand the unique tax treatment of digital assets, including complex scenarios such as hard forks, airdrops, staking rewards, mining income, and DeFi transactions. Our team is proficient in handling tax forms like Form 8949 for capital gains reporting and navigating the IRS's evolving reporting rules. Monaco CPA collaborates with other industry experts to ensure our clients receive the most up-to-date guidance. We also specialize in multi-state tax compliance, ensuring that clients with income and crypto activity across states—including New Jersey's unique loss offset limitations—meet all their tax obligations. Whether you are a small business owner, a high-net-worth individual with crypto assets, or an accounting professional seeking white-label crypto tax support, Monaco CPA offers tailored solutions to simplify your crypto tax return and minimize your tax burden. We provide personalized tax advice to help you optimize your crypto investments and maximize tax efficiency. For particularly complex tax situations, Monaco CPA can work alongside a tax attorney to ensure full compliance and minimize risk.
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Understanding Crypto Assets
Crypto assets encompass a wide range of digital assets, including cryptocurrencies like Bitcoin and Ethereum, tokens, and non-fungible tokens (NFTs). The IRS treats these assets as property, which means that every sale, exchange, or disposition is subject to capital gains tax. For crypto investors, this classification brings both opportunities and responsibilities. Accurate capital gains reporting starts with understanding the fair market value of your crypto assets at the time of each transaction. This value determines your taxable gain or loss and directly impacts your income tax liability. Whether you're holding, trading, or using crypto for purchases, knowing the fair market value and maintaining detailed records is essential for meeting your tax obligations. Different types of crypto assets may have unique tax treatment, so it's important for investors to stay informed about how the IRS views each asset class. Some crypto activities, such as mining or staking, may result in taxable income that must be reported to the IRS. Notably, under IRS Notice 2023-27, certain NFTs may be classified as "collectibles" based on a look-through analysis of the underlying asset—meaning long-term gains on qualifying NFTs could face a maximum 28% tax rate rather than the standard 20% cap. By keeping up with the latest guidance and working with professionals who specialize in digital assets, you can ensure that your crypto investments are reported correctly and in compliance with current tax laws.
Introduction to Crypto Taxes
Cryptocurrency investors and traders face a pivotal moment as the IRS implements significant changes to crypto taxation starting in 2025. The IRS classifies cryptocurrencies as property, which means transactions involving crypto are taxed differently than traditional currency transactions. Unlike traditional currencies, cryptocurrencies are not backed by any central bank or government, which impacts their regulation and the level of consumer protections available. If you want to stay ahead of evolving tax obligations and ensure your portfolio and crypto investments are fully compliant, understanding these new rules is essential. At Monaco CPA, a crypto tax CPA firm (certified public accountant) specializing in crypto tax services and advisory, we help clients navigate the complexities of crypto tax preparation, reporting, and strategic planning.
Crypto Accounting and Record-Keeping: What You Need to Know
In the rapidly evolving world of crypto taxation, meticulous crypto accounting and diligent record-keeping are more important than ever. Every crypto transaction—from simple trades to complex DeFi activities—can have significant crypto tax implications, impacting your overall tax burden and compliance status.
As a crypto investor, you are responsible for tracking the details of each transaction, including dates, amounts, fair market value at the time of the transaction, and the purpose of the transfer. This information is essential for accurate crypto tax preparation and for meeting your tax obligations under the latest IRS rules. Without comprehensive records, you risk overpaying taxes, missing out on deductions, or facing IRS scrutiny due to incomplete or inconsistent reporting.
⚠️ CRITICAL 2025 CHANGE — Wallet-by-Wallet Tracking Required: Under Revenue Procedure 2024-28 and 26 CFR §1.1012-1(j), the IRS has officially disallowed the “universal method” of aggregating cost basis across all wallets. You must now track basis on a wallet-by-wallet (or account-by-account) basis. If you sell Bitcoin from Coinbase, you must use the cost basis of Bitcoin in that specific Coinbase account—you cannot use the basis of Bitcoin held in your Ledger hardware wallet or another exchange. Many crypto tax software tools default to “Universal Average Cost,” which may produce non-compliant tax returns in 2025.
Crypto tax professionals, like the team at Monaco CPA, can help you implement robust crypto accounting systems tailored to your portfolio and trading activity. Monaco CPA is a certified public accountant firm specializing in crypto accounting and compliance. Leveraging specialized software and accounting best practices, we ensure that your crypto transactions are properly categorized, your cost basis is accurately tracked, and your records are audit-ready. Using dedicated tax software can help automate tracking and reporting of crypto transactions for tax purposes. This proactive approach not only streamlines your crypto tax return but also positions you for strategic tax planning and long-term compliance.
Whether you’re managing a handful of wallets or executing high-volume trades across multiple exchanges, investing in professional crypto accounting is a smart move. It reduces your risk, simplifies your crypto tax preparation, and gives you peace of mind knowing your tax obligations are being met. For crypto investors serious about compliance and minimizing their tax burden, working with experienced crypto tax professionals is essential in today’s regulatory environment.
Navigating the Crypto Space
Navigating the crypto space can be daunting, especially as IRS regulations and reporting rules continue to evolve. For crypto investors and businesses, understanding the crypto tax implications of every transaction is essential to avoid unexpected tax burdens and ensure full compliance. Each crypto transaction—whether it’s buying, selling, trading, or earning digital assets—can trigger tax obligations, from income tax to capital gains reporting.
Complex transactions like cross-chain bridges and wrapped assets present additional challenges. Under Notice 2024-57, the IRS has temporarily exempted certain complex transactions—including wrapping, unwrapping, and some DeFi activities—from broker reporting requirements. However, this does not mean these transactions are tax-free; taxpayers must still report them correctly on their returns. Professional guidance is essential for handling these nuanced scenarios.
This is where crypto tax professionals and full-service tax firms come in. Firms specializing in crypto tax services, such as Crypto Tax Girl, offer expert guidance on crypto tax preparation, capital gains calculations, and fair market value assessments. These professionals understand the nuances of crypto accounting and can help you accurately report your crypto transactions, minimize your tax burden, and stay compliant with IRS requirements. Working with a certified public accountant ensures your crypto tax needs are handled by a licensed expert with the credentials to navigate complex tax laws.
Working with a dedicated tax firm ensures that your digital assets are properly tracked, your cost basis is calculated correctly, and your capital gains are reported in line with current regulations. Crypto tax professionals also provide advisory services to help you make informed decisions about your investments, optimize your tax position, and plan for future growth in the crypto space.Whether you’re a seasoned crypto investor or just starting out, leveraging the expertise of a full-service tax firm can make all the difference. With the right support, you can confidently manage your crypto assets, meet your tax obligations, and focus on growing your portfolio in a rapidly changing environment
Crypto Exchange and Trading: What Investors Must Know
Trading on a crypto exchange is at the heart of most cryptocurrency activity, but it also brings a host of crypto tax implications that investors cannot afford to overlook. Every time you buy, sell, or exchange digital assets—whether it’s Bitcoin, Ethereum, or any other token—these transactions are considered taxable events by the IRS. This means you are required to report each trade, calculate your capital gains or losses, and ensure your crypto tax return is accurate and complete. To stay compliant and avoid an unexpected tax burden, it’s essential to keep meticulous records of every crypto transaction. This includes the date and time of each trade, the type and amount of digital assets involved, and the fair market value at the moment of the transaction. These details are crucial for proper capital gains reporting and for determining your cost basis, which directly impacts how much you owe in taxes. Crypto tax professionals and full-service tax firms, such as Crypto Tax Girl and Monaco CPA, offer specialized crypto tax services to help investors navigate these complexities. A certified public accountant can provide expert guidance on crypto tax compliance, ensuring your reporting meets IRS requirements. With expert crypto accounting and guidance, you can ensure that your crypto tax preparation is thorough and that your tax obligations are met. Whether you’re a casual investor or an active trader, understanding the tax treatment of your crypto assets and working with experienced professionals can help you minimize your tax burden and stay ahead of IRS compliance requirements. Remember, every trade on a crypto exchange is a potential taxable event. By staying organized and seeking professional advice, you can confidently manage your digital assets and avoid costly mistakes at tax time. Note on wash sales: The wash sale rule (IRC §1091), which disallows claiming a loss on a security sold and repurchased within 30 days, currently does not technically apply to cryptocurrency transactions. However, investors should be aware that the IRS may apply the Economic Substance Doctrine (IRC §7701(o)) to challenge transactions that lack meaningful economic purpose beyond tax savings—see our loss harvesting guidance below.
Tax Implications of Crypto Investments
Investing in crypto can have significant tax implications that go beyond simple capital gains. Every crypto transaction—whether it’s a sale, trade, or earning crypto through mining or staking—can trigger different types of taxes, including income tax, capital gains tax, and, in some cases, self-employment tax. Understanding the tax treatment of your crypto investments starts with accurately determining the fair market value and cost basis of your assets. The cost basis is the original value of your crypto at the time of acquisition, which is used to calculate your gain or loss when you dispose of the asset. Failing to track this information can lead to errors in your tax return and potential penalties. Accurate reporting of all crypto transactions is essential for compliance. This includes not only sales and trades but also any crypto received as income, such as mining rewards or staking interest. By staying on top of your crypto tax implications and maintaining thorough records, you can avoid costly mistakes and ensure that your investments are working for you—not against you—at tax time. Consulting a certified public accountant can help ensure your crypto tax reporting is accurate and compliant.
Minimizing Crypto Tax Liabilities
Reducing your crypto tax burden requires more than just accurate reporting—it demands proactive, strategic tax planning. Crypto tax professionals can help investors and businesses identify opportunities to minimize crypto tax liabilities through a variety of proven strategies. One effective approach is tax-loss harvesting, which involves selling crypto assets at a loss to offset gains elsewhere in your portfolio. However, as noted above, investors should execute loss harvesting carefully to maintain economic substance—using Correlated Asset Swaps or waiting 30+ days before repurchasing identical assets. Charitable donations of appreciated crypto can also provide significant tax benefits, allowing you to support causes you care about while reducing your taxable income. Remember: donations exceeding $5,000 require a Qualified Appraisal under IRS rules. In many cases, these donations may qualify as a tax deduction, further lowering your overall tax liability. Staying informed about the latest crypto tax laws and leveraging the expertise of professionals can help you make smart decisions throughout the year. At Monaco CPA, we work closely with clients to develop customized strategies for minimizing their tax burden and maximizing after-tax returns. Whether you’re a long-term investor or an active trader, strategic tax planning is essential for navigating the complexities of crypto taxation and keeping more of what you earn. Working with a certified public accountant can help you identify the best strategies for minimizing your crypto tax liabilities.
Understanding Crypto Tax CPAs: Choosing the Right Expert
Selecting the right crypto tax CPA (certified public accountant) is a critical step for any investor looking to optimize their tax strategy and ensure full compliance with evolving crypto taxation rules. A knowledgeable crypto tax CPA brings more than just general accounting expertise—they offer deep insight into the tax treatment of digital assets, capital gains, and the unique reporting rules that apply to the crypto space. When evaluating a crypto tax CPA, look for professionals with proven experience in handling crypto tax services and a strong reputation within the crypto community. It is essential to choose a licensed CPA or tax professional to ensure compliance and credibility. The best CPAs will clearly explain complex concepts like cost basis, capital gains, and the tax implications of various crypto transactions, making it easier for you to make informed decisions. They should also offer a range of services, from strategic tax planning and crypto tax preparation to advisory services tailored to your specific portfolio and business needs. Consider the firm’s approach to compliance, their familiarity with the latest IRS guidance, and their ability to provide reliable tax advice for both routine and complex crypto activities. Transparent fee structures and responsive client support are also important factors when choosing a CPA firm. By partnering with a qualified crypto tax CPA, you gain access to expert guidance that can help you reduce your tax burden, avoid costly errors, and ensure your crypto assets are managed in line with current tax laws. This proactive approach to compliance and strategic tax planning is essential for protecting your investments and achieving long-term success in the crypto space.
Advisory Services for Crypto Taxation
Advisory services for crypto taxation are a critical resource for both individuals and businesses seeking to navigate the ever-changing landscape of cryptocurrency tax compliance. As the IRS continues to refine its approach to digital assets, the expertise of a full-service tax firm becomes invaluable. Crypto tax professionals offer tailored crypto tax services that go beyond basic tax preparation—they provide strategic guidance on the crypto tax implications of your transactions, helping you minimize your tax burden and meet all tax obligations.
Whether you’re an active crypto investor, a business accepting digital assets, or someone new to the crypto space, advisory services can help you understand the tax treatment of your crypto transactions, from income tax on staking rewards to capital gains reporting for asset sales. These services include comprehensive crypto tax preparation, detailed capital gains calculations, and proactive planning to optimize your investments and reduce your overall tax liability.
Working with a knowledgeable tax attorney, certified public accountant, or crypto accountant ensures that your crypto tax return is accurate, your cost basis is properly tracked, and your reporting aligns with the latest IRS rules. Advisory services also help you anticipate future regulatory changes, manage complex transactions, and make informed decisions about your crypto assets. By partnering with a reputable tax firm specializing in crypto taxation, you gain access to expert tax advice, robust compliance support, and peace of mind knowing your investments are protected. For clients of Monaco CPA, advisory services mean having a dedicated team of crypto tax professionals who understand the nuances of digital assets and are committed to helping you achieve your financial goals while staying fully compliant with IRS regulations.
Digital Asset Taxation
Digital asset taxation is a rapidly evolving and highly specialized area of tax law that presents unique challenges for both individual crypto investors and businesses. As the IRS continues to refine its approach to crypto tax, understanding the crypto tax implications of your digital asset transactions is more important than ever. Digital assets—including cryptocurrencies, tokens, and non-fungible tokens (NFTs)—are treated as property for tax purposes, which means every sale, exchange, or disposition can trigger a taxable event and must be reported on your crypto tax return.
Navigating the complexities of digital asset taxation requires more than just basic tax knowledge. Crypto tax professionals and full-service tax firms offer specialized crypto tax services designed to help clients accurately report their crypto transactions, calculate capital gains and losses, and minimize their overall tax burden. Strategic tax planning is essential for identifying opportunities to offset gains, optimize income recognition, and ensure compliance with the latest IRS reporting rules.
For crypto investors, proper crypto tax preparation starts with understanding the fair market value and cost basis of each digital asset at the time of every transaction. This is crucial for accurate capital gains reporting and for meeting your tax obligations. Crypto accountants and advisory services can help you track your crypto activity across multiple wallets and exchanges, ensuring that every transaction is properly documented and reported.
Businesses operating in the crypto space face additional layers of complexity, from accepting crypto as payment to mining digital assets or investing in crypto-based funds. Each of these activities has distinct tax treatment and reporting requirements. Working with a qualified crypto tax professional, certified public accountant, or tax attorney ensures that your business remains compliant, your crypto income is properly recognized, and your tax strategy is aligned with your financial goals.
Whether you are an active crypto trader, a long-term investor, or a business integrating digital assets into your operations, partnering with experienced accounting professionals is the best way to navigate the evolving landscape of crypto taxation. By leveraging expert tax advice and comprehensive crypto tax services, you can confidently manage your tax obligations, reduce your risk of IRS scrutiny, and make the most of your crypto investments in every tax year.
Conclusion
In conclusion, staying ahead in the world of crypto taxation requires more than just basic knowledge—it demands strategic tax planning, expert guidance, and a commitment to compliance. The IRS’s evolving rules mean that crypto investors, traders, and businesses must be proactive in understanding their tax obligations, from income recognition to capital gains reporting and the treatment of new coins or mining income.
The 2025 tax year brings unprecedented changes: Form 1099-DA reporting, wallet-by-wallet basis tracking requirements under Rev. Proc. 2024-28, and increased IRS scrutiny of aggressive loss-harvesting strategies. For New Jersey residents, state-specific limitations on loss offsets add another layer of complexity.
Partnering with experienced crypto tax professionals, such as those at Crypto Tax Girl or a reputable tax firm like Monaco CPA, provides access to specialized tax advice, comprehensive crypto tax preparation, and ongoing support for even the most complex crypto assets. These accounting professionals can help you navigate the intricacies of tax forms, cost basis calculations, and reporting rules, ensuring that every taxable event is properly documented and your crypto gains are accurately reported.
By prioritizing compliance and leveraging advisory services, you can minimize your tax burden, avoid costly mistakes, and make the most of your crypto investments. Whether you’re a crypto trader, business owner, or cryptocurrency investor, working with a knowledgeable certified public accountant (CPA) or tax attorney is the best way to ensure your tax return is complete, your crypto activity is fully reported, and your financial future is secure in the ever-changing crypto space.
Remember, the key to successful crypto taxation is preparation, expertise, and a strategic approach—so you can focus on growing your assets while staying compliant with IRS rules and regulations.
Additional Resources
Staying informed about crypto taxation is crucial for maintaining compliance and making informed decisions. Fortunately, there are a variety of reputable resources available to help you stay up-to-date:
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IRS Digital Assets Page (irs.gov/filing/digital-assets) — Official guidance on crypto tax rules
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IRS Fact Sheet FS-2024-23 — Final regulations on 1099-DA broker reporting
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Revenue Procedure 2024-28 — Wallet-by-wallet basis tracking safe harbor
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Revenue Ruling 2023-14 — Staking income taxation guidance
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Notice 2023-27 — NFT collectibles classification
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CCA 202302012 — Qualified appraisal requirement for crypto donations
Industry experts such as Crypto Tax Girl regularly share updates and practical tips on navigating the evolving landscape of crypto taxation. The American Institute of Certified Public Accountants (AICPA) provides valuable insights for accounting professionals and crypto investors alike. Whether you're seeking answers to specific questions or looking for ongoing support, these resources can help you stay ahead of regulatory changes and confidently manage your crypto tax obligations.
Frequently asked questions
Q: What is crypto tax, and how does it affect investors?
A: Crypto tax refers to the tax obligations that arise from buying, selling, and exchanging digital assets. Investors must report all crypto transactions to the IRS and pay taxes on any capital gains or crypto income earned. Failing to report these activities can result in penalties and increased tax liability.
Q: How do I report crypto transactions on my tax return?
A: Crypto transactions should be reported on your annual tax return using Form 1040. Capital gains and losses from trading digital assets are detailed on Schedule D and Form 8949, where you must list each transaction, its fair market value, and your cost basis.
Q: What is the fair market value of a digital asset, and how is it determined?
A: The fair market value is the price a digital asset would sell for on the open market, typically measured in US dollars at the time of the transaction. This value is usually determined by referencing the price on a reputable crypto exchange at the exact date and time of the transaction.
Q: Can I offset my crypto losses against my gains?
A: Yes, you can offset crypto losses against your gains to reduce your overall tax burden. The IRS allows you to use capital losses from digital assets to offset capital gains, but you must follow the proper reporting rules and document all transactions accurately. Note for NJ residents: New Jersey does not allow capital losses to offset ordinary income and does not permit loss carryforwards.
Q: Do I need to report crypto income on my tax return?
A: Absolutely. All crypto income—including mining rewards, staking interest, and income from trading—must be reported on your tax return. This income is generally subject to income tax and must be included in your total taxable income for the tax year. For accurate crypto tax reporting and compliance, it is recommended to consult a certified public accountant who is experienced with digital asset taxation.
Q: What is the wallet-by-wallet tracking requirement?
A: Under Revenue Procedure 2024-28, the IRS now requires taxpayers to track cost basis on a wallet-by-wallet or account-by-account basis. You can no longer aggregate all holdings of a cryptocurrency across multiple wallets to calculate a “universal” average cost. If you sell Bitcoin from one exchange, you must use the basis of Bitcoin in that specific account.
Q: Can I immediately rebuy crypto after selling at a loss?
A: While the statutory wash sale rule (IRC §1091) does not technically apply to cryptocurrency, the IRS may challenge transactions under the Economic Substance Doctrine (IRC §7701(o)) if they lack meaningful economic purpose. To be safe, consider using a Correlated Asset Swap (sell BTC, buy ETH) or wait at least 30 days before repurchasing the identical asset.
Q: Do I need an appraisal to donate cryptocurrency to charity?
A: If you donate more than $5,000 worth of cryptocurrency, you must obtain a Qualified Appraisal (Form 8283, Section B) to claim the charitable deduction. Exchange screenshots are not sufficient. This requirement was confirmed in IRS Chief Counsel Advice 202302012.
Glossary
Understanding the terminology of crypto taxation is essential for effective compliance and strategic tax planning. Here are some key terms every crypto investor and business should know:
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Crypto Tax: The tax obligations that arise from buying, selling, trading, or earning digital assets. Crypto tax applies to both income tax and capital gains tax, depending on the nature of the transaction.
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Digital Assets: Any asset that exists in digital form, including cryptocurrencies, tokens, and NFTs, subject to specific tax treatment by the IRS.
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Capital Gains: The profit realized from selling or exchanging a digital asset for more than its cost basis. Capital gains must be reported on your tax return and are subject to capital gains tax.
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Cost Basis: The original purchase price or value of a digital asset at the time of acquisition, used to calculate gains or losses when the asset is sold or exchanged.
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Crypto Accounting: The process of tracking, recording, and reconciling all cryptocurrency transactions for accurate tax reporting and compliance.
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Fair Market Value: The price a digital asset would fetch on the open market at the time of a transaction, used to determine taxable income or gains.
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Tax Obligations: The legal requirements to report and pay taxes on crypto income, capital gains, and other taxable events.
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Crypto Tax Return: The section of your annual tax return where you report all crypto-related income, gains, and losses, typically using forms like Form 8949 and Schedule D.
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Owe Taxes: The requirement to pay taxes on crypto gains, income, or other taxable events as determined by IRS rules.
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Crypto Taxation: The overall system and rules governing how digital assets are taxed, including income recognition, capital gains, and reporting requirements.
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Strategic Tax Planning: The process of organizing your crypto transactions and investments to minimize your tax burden and maximize after-tax returns.
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Crypto Income: Earnings from activities such as mining, staking, airdrops, or receiving crypto as payment, generally taxed as ordinary income.
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Tax Advice: Professional guidance provided by tax attorneys, CPAs, or accounting professionals to help you comply with crypto tax laws and optimize your tax position.
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Tax Firm: A business specializing in tax preparation, planning, and advisory services, often with expertise in crypto assets and digital asset compliance.
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Tax Attorney: A legal professional specializing in tax law, often consulted for complex crypto tax issues or audit defense.
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Certified Public Accountant: A licensed accounting professional qualified to provide tax preparation, planning, and advisory services, including specialized expertise in crypto tax compliance.
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Crypto Assets: All forms of digital assets, including cryptocurrencies, tokens, and NFTs, each with unique tax treatment.
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Tax Forms: Official IRS documents used to report crypto transactions, such as Form 8949 (capital gains/losses) and Form 1040 (annual tax return).
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Crypto Accountants: Accounting professionals with specialized knowledge in crypto accounting and digital asset taxation.
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Crypto Exchange: A platform where digital assets are bought, sold, or traded, often providing transaction records needed for tax reporting.
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Tax Return: The annual filing submitted to the IRS detailing your income, gains, losses, and tax payments, including all crypto activity.
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Income Recognition: The process of determining when crypto income is considered earned and must be reported for tax purposes.
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Crypto Gains: Profits realized from the sale, exchange, or disposition of crypto assets, subject to capital gains tax.
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Tax Treatment: The specific way a transaction or type of income is taxed under IRS rules.
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Accounting Professionals: CPAs, tax preparers, and advisors with expertise in crypto tax, accounting, and compliance.
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Reporting Rules: IRS regulations that dictate how and when crypto transactions must be reported on your tax return.
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Ordinary Income: Income earned from sources other than investments, such as wages, business income, or staking rewards, taxed at regular income tax rates.
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Crypto Community: The collective group of individuals, investors, and businesses involved in the crypto space.
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Crypto Space: The broader ecosystem of digital assets, blockchain technology, and related financial activities.
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Fair Market: The open market where digital assets are bought and sold, establishing their fair market value.
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Taxable Event: Any transaction or occurrence—such as selling, trading, or earning crypto—that triggers a tax obligation.
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Gross Proceeds: The total amount received from the sale of a digital asset before deducting cost basis or expenses.
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