Taxation of Cryptocurrency

Crypto tax rules vary by country, but most systems treat digital assets as property or a similar asset class. That means disposals (selling, swapping, or spending) can trigger capital gains/losses, while activities like staking or getting paid in crypto are usually income. Good records are everything.

1) What Creates a Taxable Event?

• Sell for fiat: Realize a gain/loss = proceeds − cost basis.
• Swap crypto ↔ crypto: Often treated like a sale of the asset you give up and a purchase of the asset you receive.
• Spend crypto on goods/services: Generally a disposal—calculate gain/loss at the time of payment.
• Gifts/transfers: Rules differ; frequently non-taxable for the giver but may affect basis for the recipient (check local law).

2) When Is Crypto Taxed as Income?

• Salary/contractor payments: Income at fair market value (FMV) on receipt; that FMV becomes your cost basis.
• Staking/yield/interest: Typically ordinary income at FMV when credited/claimable; later disposals create gains/losses.
• Mining/validating: Income at FMV of block rewards; expenses may be deductible depending on local rules.
• Airdrops/forks: Often income when you have control over the tokens; basis set by FMV at that time.

3) Holding Period, Rates & Methods

• Short vs. long term: Many jurisdictions tax short-term gains at higher rates than long-term; the threshold (e.g., 12 months) varies by country.
• Cost-basis methods: FIFO, LIFO, specific identification—availability depends on your tax authority. Document lots meticulously.
• Loss harvesting: Realize losses to offset gains (subject to local limitations and wash-sale style rules where applicable).

4) DeFi, NFTs & Other Complications

• Swaps & LP tokens: Adding/removing liquidity, wrapping/unwrapping, and complex vaults may be taxable events depending on jurisdiction and transaction form.
• NFTs: Creators usually recognize income on primary sales/royalties; buyers/sellers recognize gains/losses on resales.
• Stablecoins: Still can create taxable gains or income when disposing or receiving as yield.

5) Record-Keeping & Tooling

• Track date, asset, quantity, price (FMV), fees for every transaction; save txids and exchange CSVs.
• Reconcile across exchanges, wallets, and chains; watch for duplicates and missing fees.
• Consider crypto tax software for lot tracking and reports; complex cases may warrant a tax professional.

Summary

Most tax regimes treat disposals as capital gains/losses and many inflows as income. Keep clean records, understand your basis and holding periods, and plan ahead for DeFi and NFT complexities. Local rules differ—stay aligned with guidance in your jurisdiction.

What's Next

Up next: AML and KYC in Cryptocurrency — learn how identity verification, sanctions screening, and on-chain monitoring intersect with user privacy and platform obligations.