The most common crypto tax mistakes

Crypto tax reporting can be complex, and certain errors are particularly common. Avoiding these mistakes can help you stay compliant and reduce your tax liability. Here are some of the most common crypto tax mistakes every crypto user should try to avoid.

Calculate your crypto gains with our free crypto profit calculator.

Underestimating the IRS’ ability to trace your crypto activity

The IRS uses advanced tools like subpoenas and blockchain analytics to track crypto activity across exchanges and wallets. Assume the IRS has complete visibility into your transactions, including DeFi and off-exchange wallets.

See our expert picks of the best crypto wallets.

Ignoring or misreporting airdrops

Funds from airdrops or hard forks are taxed as ordinary income at their market value when received. These must be reported accurately, even if the tokens were unsolicited.

Learn more about how crypto airdrops are taxed.

Guessing or averaging cost basis

Accurately calculating your crypto cost basis (the original purchase price of your crypto with fees) is critical. Use tax software like TokenTax to track the cost basis for all your transactions and avoid errors.

Not filing because you can’t pay

Even if you can’t pay your tax bill in full, you must file your crypto taxes on time. The IRS offers payment plans to help taxpayers manage their obligations.

Not claiming capital losses

Crypto losses can offset gains and reduce your taxable income. Use Form 8949 and Schedule D to report these losses and ensure you benefit from applicable deductions.

Failure to report every crypto transaction

All crypto transactions, including trades and purchases, must be reported. Missing transactions can lead to underreporting, which may trigger penalties or audits.

Ignoring crypto-to-crypto trades

Crypto-to-crypto trades are taxable events and must be accounted for. Record the fair market value of each trade to calculate capital gains or losses.

Overlooking tax obligations for mining or staking rewards

Mining and rewards from staking crypto are taxed as income when received and are subject to capital gains tax upon disposal. Keep detailed records to track income and calculate gains accurately.

Failure to report foreign crypto exchange activity

If you use offshore exchanges, you still need to report these transactions. The IRS is increasingly targeting unreported foreign crypto activity through international agreements.

Relying on exchange-provided tax documents

Exchange-provided tax forms may be incomplete or inaccurate. Cross-check all data and report any transactions missing from these documents to avoid errors.

Neglecting to report crypto-related income

Income from crypto lending, staking, and other activities must be reported. Record the fair market value of received income and track subsequent disposals for accurate reporting.

See our expert picks of the best crypto loans.