How are cryptocurrency trades taxed by the IRS?

The IRS treats cryptocurrency as property under Notice 2014-21. Every sale, trade, or exchange triggers a taxable event requiring capital gains or losses to be reported on Form 8949 and Schedule D.

How is crypto mining income taxed?

Mining rewards are taxable as ordinary income at fair market value when you gain dominion and control of the coins. If mining as a business, you can deduct equipment and electricity costs on Schedule C but owe self-employment tax.

Are DeFi transactions taxable?

Yes. DeFi lending interest, liquidity pool rewards, and token swaps are generally taxable. Adding liquidity is typically treated as trading your tokens for LP tokens. Yield and interest earned is ordinary income when received.

What crypto tax forms do I need to file?

Most crypto investors need Form 8949 for capital gains and losses, Schedule D for summary totals, and must answer 'Yes' to the digital assets question on Form 1040. Mining or staking income may require Schedule 1 or Schedule C.

What happens if I didn't report crypto in previous years?

You can file amended returns (Form 1040-X) to report previously omitted crypto activity. Proactive amendment is better than waiting for IRS detection, as the IRS has received exchange data through summonses and will receive 1099-DA forms starting 2025.

Cryptocurrency Tax CPA | Bitcoin, DeFi, NFT Tax Preparation | Monaco CPA

Cryptocurrency Tax CPA | New Jersey

The IRS has made it clear: cryptocurrency is taxable property, not currency. Every trade, sale, stake, and airdrop creates tax obligations that must be reported accurately. With new 2025 IRS requirements now in effect—including wallet-by-wallet cost basis tracking and upcoming Form 1099-DA reporting—proper crypto tax compliance has never been more critical.

Monaco CPA is a virtual CPA firm based in Livingston, New Jersey, specializing exclusively in cryptocurrency taxation. We serve individual investors, active traders, DeFi participants, NFT creators, and crypto businesses nationwide. Whether you have 50 transactions or 50,000, we have the expertise and tools to handle your crypto taxes accurately and strategically.

Why You Need a Crypto-Savvy CPA

Generic tax software and traditional accountants often fail with cryptocurrency. The IRS treats every crypto transaction as a taxable event—including crypto-to-crypto trades that never touch USD. Miss one swap on a DEX, misreport staking rewards, or miscalculate cost basis across multiple wallets, and you're facing penalties, interest, or audit.

A crypto tax CPA provides:

Accurate cost basis calculations using FIFO, LIFO, or Specific Identification methods
Multi-exchange reconciliation across Coinbase, Kraken, Binance, and 50+ other platforms
DeFi transaction tracking including liquidity pools, yield farming, and governance tokens
Tax-loss harvesting strategies to offset gains (crypto currently exempt from wash sale rules)
IRS audit representation with full documentation and defense of your positions

Critical 2025 IRS Crypto Requirements

The regulatory landscape changed significantly in 2025. Here's what you need to know:

Wallet-by-Wallet Cost Basis Tracking

As of January 1, 2025, the IRS requires cost basis to be tracked separately for each wallet and exchange account (per Rev. Proc. 2024-28). Universal cost basis tracking across all holdings is no longer permitted. Monaco CPA helps clients transition existing holdings under safe harbor provisions and implement compliant tracking systems.

Form 1099-DA Reporting Timeline

2025: Centralized exchanges began tracking transactions
Early 2026: Taxpayers receive first Form 1099-DA (gross proceeds only)
2027: Cost basis reporting begins on 1099-DA

Note: The DeFi broker reporting rule was repealed in April 2025, so decentralized protocols are not required to issue 1099-DA forms.

Comprehensive Crypto Tax Services

The IRS treats crypto as property, not currency, which means general tax principles of property apply: you incur gains or losses when disposing of it. We make sure to apply this consistently. We’re also fully aware of specific IRS rulings and guidelines:

Trading & Capital Gains

We reconcile transactions across all your exchanges and wallets, calculating capital gains or losses for every taxable disposition. Each trade is categorized as short-term (under 1 year, taxed up to 37%) or long-term (over 1 year, taxed 0-20% plus 3.8% NIIT for high earners). We prepare Form 8949 and Schedule D with complete documentation.

Cost basis methods we support:

FIFO (First-In, First-Out) — IRS default method
LIFO (Last-In, First-Out) — May minimize gains in rising markets
Specific Identification — Maximum flexibility when properly documented

DeFi & Yield Farming

DeFi activities create complex tax situations that most accountants can't handle. We analyze liquidity pool transactions, report yield farming income, calculate impermanent loss, and track governance token taxation. Every protocol interaction—swaps, lending, borrowing, wrapping—is properly categorized and reported.

Protocols we regularly work with:

Uniswap, Aave, Compound, Curve, Lido, Maker, Convex, Yearn, and dozens more across Ethereum, Solana, Arbitrum, Polygon, and other chains.

Mining & Staking

Mining and staking rewards are taxable as ordinary income at fair market value when you gain "dominion and control" over the coins (per Rev. Rul. 2023-14). This becomes your cost basis for future sales. If mining is a business, we help you deduct equipment, electricity, and depreciation on Schedule C while managing self-employment tax obligations.

NFTs & Digital Collectibles

NFT taxation has unique considerations. Per IRS Notice 2023-27, NFTs representing collectibles (artwork, gems, antiques) may be subject to the 28% collectibles tax rate rather than standard long-term capital gains rates. We help NFT creators report royalty income, collectors track cost basis across marketplaces, and gaming enthusiasts manage in-game token transactions.

Airdrops & Hard Forks

Per Rev. Rul. 2019-24, tokens received from airdrops and hard forks are taxable as ordinary income at fair market value when you gain dominion and control. If you receive new coins from a hard fork but cannot access them, they're not taxable until you can. We track these events and calculate the correct income recognition and cost basis.

Strategies to Legally Reduce Crypto Taxes

Tax-Loss Harvesting

Cryptocurrency is currently exempt from wash sale rules (unlike stocks), meaning you can sell at a loss, immediately repurchase, and still claim the loss. Losses offset capital gains dollar-for-dollar. If losses exceed gains, up to $3,000 can offset ordinary income annually, with unlimited carryforward to future years.

Important: Wash sale rules DO apply to cryptocurrency ETFs and tokenized securities. Congress may extend wash sale rules to crypto in the future—we monitor legislation and adjust strategies accordingly.

Holding Period Planning

Holding crypto for over one year qualifies you for long-term capital gains rates (0%, 15%, or 20%) versus short-term rates (up to 37%). For a high-income taxpayer with $100,000 in gains, the difference between short-term and long-term treatment can exceed $20,000 in tax savings. We analyze your positions and advise on timing strategies.

Retirement Account Strategies

Holding crypto in a self-directed IRA or through Bitcoin ETFs in a 401(k) can provide tax-advantaged growth. Traditional accounts offer tax-deferred gains; Roth accounts offer tax-free withdrawals. We help evaluate whether these structures align with your investment goals and timeline.

Entity Structure Optimization

For active traders and mining operations, forming an LLC or S-Corp may provide tax advantages. S-Corp election can reduce self-employment tax on mining profits. Business entities can deduct equipment, electricity, software, and other operational expenses. We analyze your situation to determine the optimal structure.

Crypto Tax Problems We Solve

Multi-exchange complexity: Reconciling transactions across 10+ exchanges and hundreds of wallets
DeFi transaction tracking: Parsing on-chain activity through multiple protocols and chains
Airdrop and fork income: Determining fair market value and taxable events
International reporting: FBAR and FATCA compliance for foreign exchange holdings over $10,000
Lost wallet situations: Documenting losses from inaccessible wallets or exchange bankruptcies
Prior year corrections: Amending returns and voluntary disclosure for unreported crypto
IRS notices and audits: Responding to CP2000 notices, Letters 6173/6174, and full examinations

Our Crypto Tax Process

1. Data Collection

We gather transaction data from all exchanges, wallets, and DeFi protocols through secure API connections, CSV imports, and on-chain analysis. Our tools integrate with Coinbase, Kraken, Binance, MetaMask, Ledger, and dozens of other platforms.

2. Transaction Analysis

Using specialized crypto tax software combined with manual review, we categorize every transaction, calculate cost basis using your selected method, and identify all taxable events including those often missed (wrapped tokens, liquidity provisions, governance rewards).

3. Optimization

We apply tax-loss harvesting, select optimal accounting methods, identify all eligible deductions, and implement strategies to minimize your current and future tax liability.

4. Compliance & Filing

We prepare Form 8949, Schedule D, Schedule 1, Schedule C (if applicable), and all required forms for accurate IRS reporting. You receive complete documentation supporting every calculation.

5. Ongoing Support

Year-round guidance for tax planning, quarterly estimated payments, and audit protection. As regulations evolve, we keep you informed and compliant.

Who We Serve

Active Traders: Day traders, swing traders, and algorithmic traders managing high-volume transactions across numerous platforms
DeFi Participants: Yield farmers, liquidity providers, and users of decentralized lending, borrowing, and trading protocols
Long-term Investors: HODLers seeking tax optimization strategies and accurate reporting for accumulated digital assets
NFT Creators & Collectors: Artists, collectors, and traders navigating royalty income and collectibles tax treatment
Miners & Validators: Solo miners, mining pools, and staking validators with equipment and operational expenses
Crypto Businesses: Companies accepting cryptocurrency payments, blockchain startups, and crypto-native enterprises

Frequently Asked Questions

Do I need to report crypto if I didn't sell for USD?

Yes. The IRS requires reporting of all cryptocurrency transactions, including crypto-to-crypto trades. Swapping Bitcoin for Ethereum or trading tokens on Uniswap are taxable events, even if you never converted to dollars.

What if I lost money on crypto?

Losses can offset capital gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000 against ordinary income annually, with unlimited carryforward. We help maximize these deductions through strategic tax-loss harvesting.

Can you help with prior years I didn't report?

Absolutely. We assist with amending prior returns and voluntary disclosure programs. Coming forward proactively typically results in lower penalties than waiting for IRS discovery. We've helped many clients achieve full compliance.

How do you handle DeFi complexity?

We use specialized tools to analyze on-chain data, track protocol interactions across multiple chains, and accurately categorize each transaction. Our team has hands-on experience with the protocols—we understand how they work, not just how to report them.

What if I lost access to my wallet or an exchange went bankrupt?

We help reconstruct transaction history from blockchain explorers and available records. For genuinely lost assets, we document the loss for potential abandonment treatment or casualty deduction. Each situation requires individual analysis—we'll evaluate the best approach for your circumstances.

Don't Let Crypto Taxes Overwhelm You

Cryptocurrency taxation is complex, time-consuming, and constantly evolving. Whether you're dealing with Bitcoin, Ethereum, DeFi, NFTs, or other digital assets, Monaco CPA provides the expertise needed to ensure accurate reporting, minimize your tax burden, and maintain IRS compliance.

Free 15-Minute Consultation

Call: (862) 320-9554

Based in Livingston, NJ • Serving crypto investors nationwide

IRS Rules & Compliance

Notice 2014-21: Foundational guidance establishing crypto as property
Rev. Rul. 2019-24: Taxation of hard forks and airdrops
Rev. Rul. 2023-14: Staking rewards taxable when you gain dominion and control
Notice 2023-27: NFT collectibles treatment and 28% tax rate guidance
Rev. Proc. 2024-28: Wallet-by-wallet cost basis tracking requirements
Form 1040 Digital Assets Question: Mandatory disclosure on every tax return

Serving New Jersey & Nationwide

While headquartered in Livingston, Essex County, Monaco CPA serves cryptocurrency investors and businesses throughout New Jersey and across all 50 states. Our fully virtual model provides secure document handling, flexible scheduling, and expert crypto tax services regardless of your location.

New Jersey service areas include:

Livingston, Morristown, Jersey City, Newark, Princeton, Hoboken, Short Hills, Millburn, West Orange, Montclair, Summit, Westfield, and all counties throughout New Jersey.

New Jersey tax note: NJ taxes capital gains as ordinary income at rates up to 10.75%—there's no preferential long-term rate at the state level. Proper planning is essential to manage both federal and NJ tax obligations on crypto gains.

Ready to get your crypto taxes handled correctly?

Schedule your free consultation today: (862) 320-9554 or visit monacocpa.cpa