The learning path
In the United States the IRS treats crypto as property, so selling, swapping, or spending it creates a capital gain or loss. Buying with dollars and holding is not taxable. Moving between your own wallets is not taxable. Swapping one token for another is taxable even though no cash was involved, which surprises almost everyone.
What is and is not taxable in the US
| Action | Taxable? | Notes |
|---|---|---|
| Buying crypto with dollars | No | You establish a cost basis. Record the date and amount |
| Holding | No | Unrealized gains are not taxed |
| Moving between your own wallets | No | Not a disposal. Keep records so it is not mistaken for one |
| Selling for dollars | Yes | Capital gain or loss against your cost basis |
| Swapping token A for token B | Yes | A disposal of A at fair market value, even with no dollars involved |
| Spending crypto on goods | Yes | Treated as a sale at the moment you spend |
| Receiving staking rewards | Yes | Generally income at fair market value when received |
| Receiving an airdrop | Yes | Generally income when you gain control of it |
| Mining income | Yes | Income at fair market value, and possibly self employment tax |
| Gifting | Usually no | Below the annual exclusion. The recipient inherits your basis |
The swap surprise
This is the one that catches people. You swap ETH for a token, the token later collapses, and you assumed nothing happened because you never touched dollars.
In the eyes of the IRS you disposed of the ETH at its market value that day. If the ETH had appreciated, you owe tax on that gain, regardless of what happened afterward. People have ended a year holding worthless tokens and a real tax bill.
Records to keep from day one
Reconstructing this later is miserable. Start now:
- Date and time of every transaction
- What you gave and what you received, in units
- The US dollar value at that moment
- Fees paid, which usually adjust your basis
- The wallet or exchange involved
- The transaction hash, so you can always verify it
Crypto tax software connects to exchanges and reads public addresses to build this automatically. It is not perfect, especially with DeFi and bridging, but it beats a spreadsheet built from memory in March.
Terms worth knowing
| Term | Meaning |
|---|---|
| Cost basis | What you paid, including fees. Gains are measured against this |
| Short term gain | Held one year or less. Taxed as ordinary income |
| Long term gain | Held more than one year. Usually taxed at a lower rate |
| Realized | You disposed of it, so the gain or loss now counts |
| Tax loss harvesting | Selling at a loss deliberately to offset gains elsewhere |
If you are not in the United States
Rules vary enormously. Some countries treat crypto as property, some as currency, some tax only on conversion to fiat, and a few do not tax individual gains at all. Nothing on this page transfers. Find guidance for your own jurisdiction.
Common questions
Do I owe tax if I never cashed out to dollars?
In the US, quite possibly yes. Swapping between tokens is a disposal. Not touching a bank account does not exempt you.
Does the IRS know about my crypto?
Increasingly, yes. US exchanges report customer activity, and expanded broker reporting requirements have been phasing in. The chain itself is public and permanently analyzable.
What if I lost money?
Capital losses can offset capital gains and, within limits, ordinary income. You generally have to report them to claim them.
Are gas fees deductible?
Fees connected to acquiring or disposing of an asset usually adjust your cost basis or proceeds. The treatment depends on context, which is a good example of why professional advice pays for itself.
Where to go next
Stuck on this one?
Some things click faster with someone walking you through them live. Orca sessions are one to one, screen shared, and paced for wherever you actually are.