Strategy & Risk — Intermediate
Crypto Taxes: The Basics
Most countries treat crypto gains as taxable. This guide covers what triggers a tax event, how cost basis works across multiple purchases, and why keeping records matters. It is educational content, not tax advice for any specific jurisdiction.
Disclaimer: Tax laws vary by country and change frequently. This guide covers general concepts only. Consult a qualified tax professional for advice that applies to your situation.
Key concepts in this guide
- What triggers a taxable event (and what does not)
- How cost basis is calculated
- Staking rewards, airdrops and income treatment
- Why records matter and what to track
What is a taxable event?
In most jurisdictions, crypto is treated as property, not currency. That means holding it does not create a tax liability — only disposing of it does. Common taxable events include:
- Selling crypto for fiat (converting BTC to USD)
- Trading crypto for crypto (swapping ETH for SOL — treated as selling ETH and buying SOL)
- Spending crypto on goods or services (paying with BTC triggers a disposal)
- Receiving staking rewards or interest (often treated as ordinary income at the fair market value on the date of receipt)
- Receiving airdropped tokens (similarly treated as income in many jurisdictions)
Events that are generally not taxable in most countries: buying and holding, transferring between wallets you own, and receiving a gift (though giving one may be).
How cost basis works
Cost basis is the original amount paid for an asset, including fees. When you sell, the taxable gain is the sale price minus the cost basis. If you have bought the same asset multiple times at different prices, you need an accounting method to determine which “lot” you are selling from:
- FIFO (first in, first out) — assumes you sell the oldest coins first. Common default in many countries.
- Specific identification — lets you choose which lot to sell, potentially minimising tax. Requires good records.
- Average cost — averages the cost across all holdings. Not accepted in all jurisdictions.
The method available to you depends on your country’s tax law. Switching methods mid-year is usually not allowed.
Realised vs unrealised gains
An unrealised gain exists on paper while you hold the asset. Tax is generally owed only on realised gains — what you actually receive when you sell. This means you can hold a large paper gain through a downturn without a tax bill, but selling locks in both the gain and the obligation.
Keeping records
Tax authorities in most countries expect records of every transaction: date, amount in the coin, the fair market value in local fiat at the time, fees, and the resulting cost basis. Exchange records, wallet transaction histories and dedicated crypto tax software can help. Records lost are a compliance problem, not just an inconvenience.
Related reading
Educational content only. Not tax or financial advice. Tax treatment of crypto varies by country and changes regularly. Consult a qualified professional in your jurisdiction.