I’ve seen people trip over the same hurdles when it comes to crypto taxes. It’s like walking into a room full of Legos barefoot—avoidable, but painful if you don’t pay attention. Let’s break this down so you don’t end up in the same spot.
Table of Contents
Mistake 1: Not Reporting Every Transaction
- Every crypto trade, sale, or exchange is a taxable event. Even swapping Bitcoin for Ethereum counts. Forgetting to report these is like leaving breadcrumbs for an audit.
- Track every trade, no matter how small.
- Use apps or spreadsheets to log dates, amounts, and prices.
Mistake 2: Confusing Taxable and Non-Taxable Events
- Not all crypto moves are taxable, but some are sneaky. Selling Bitcoin for dollars? Taxable. Buying coffee with Dogecoin? Taxable. Just holding your crypto? You’re safe—for now.
- Know what triggers taxes: sales, trades, or purchases with crypto.
- Holding or transferring between wallets? No taxes here!
Mistake 3: Messing Up Gains and Losses
- Your cost basis (what you paid for the crypto) matters big time when calculating gains or losses. Using averages instead of specific numbers can throw everything off.
- Use tools designed for crypto tracking to calculate gains/losses accurately.
- If math isn’t your thing, hire a CPA who speaks fluent crypto.
Mistake 4: Skipping Record-Keeping
- Keep logs of every transaction—dates, amounts, and what you did with the crypto.
- Save exchange statements and receipts.
- Back everything up in case the IRS comes knocking.
Mistake 5: Missing Out on Deductions
- Crypto losses sting less when they lower your tax bill. Donated Bitcoin to charity? That’s a deduction! Lost money trading? Offset it against gains.
- Learn about deductions for donations or losses.
- Claim them to reduce your taxable income.
Crypto taxes don’t have to feel like quicksand pulling you under. Stay organized, know what counts as taxable, and don’t leave money on the table with missed deductions. Play it smart now to avoid headaches later.