5 Common Crypto Tax Mistakes to Avoid

If you're someone who's invested in cryptocurrencies, it's important to understand the tax implications of your investments. Tax laws surrounding cryptocurrencies are still evolving, which can make it difficult to stay on top of what you need to know. However, failing to understand these laws could mean making some costly mistakes. Here we have compiled five of the most common crypto tax mistakes to avoid.

Mistake #1 - Not Keeping Accurate Records

One of the biggest mistakes that crypto investors make is not keeping accurate records of their investments. It's essential to keep track of every transaction in and out of your accounts even if you made it months ago. Even the smallest transaction involving cryptocurrencies needs to be recorded, and some may have special implications like mining rewards and staking rewards.

The IRS considers cryptocurrencies to be property, which means they're subject to capital gains tax. This means that every transaction you make has the potential to increase or decrease your tax liability. Without accurate records, it can be challenging to calculate your gains or losses accurately at tax time.

Mistake #2 - Thinking that Crypto-to-Crypto Trades Are Not Taxable

Another common mistake that crypto investors make is assuming that crypto-to-crypto trades are not taxable. If you sold one cryptocurrency for another, that counts as a taxable event. Failure to report such transactions can lead to severe penalties from the IRS.

It's important to realize that crypto-to-crypto trades qualify as taxable events, just like selling a cryptocurrency for cash. Once again, this emphasizes the importance of keeping detailed and accurate records of every transaction that you make.

Mistake #3 - Misreporting Capital Gains

Crypto investors who sell their cryptocurrencies could be in for a nasty surprise when they file taxes if they have misreported their capital gains. This can happen when investors use the wrong cost basis.

The cost basis is the original value of the asset, which determines capital gains or losses. It's critical to understand that there are several methods of determining the cost basis, such as FIFO, LIFO, and specific identification, which will have different tax implications. By using the wrong method, a crypto investor can easily overpay or underpay taxes.

Mistake #4 - Not Using Tax Software or Professionals

Filing taxes for your crypto investments can be an incredibly daunting task because the rules and regulations that apply can quickly become complicated. One way to avoid making costly mistakes is to use tax software designed specifically for cryptocurrencies.

These software apps can help you track your transactions, calculate your gains and losses, and help with the preparation of your tax returns. Additionally, you can hire an expert in crypto taxes like an accountant or lawyer to help you navigate, calculate and file your return.

Mistake #5 - Not Reporting Foreign Accounts

Finally, crypto investors must be aware of their legal obligation to report foreign accounts. If you hold cryptocurrencies in a foreign exchange or wallet, you will be required to report these accounts to the US government, no matter how small your activity on these exchange is.

American taxpayers who have foreign accounts worth over $10,000 must file an FBAR (Foreign Bank Account Report). If taxpayers fail to report foreign accounts to the US government, they may be subject to substantial penalties as a result.


With digital assets fast gaining popularity, it's essential to understand the tax implications of your investment. Failure to know the rules can make your cryptocurrency gains an expensive investment.

By avoiding the five most common crypto tax mistakes we just highlighted, you can ensure that you're not leaving money on the table or putting yourself at risk for audit, fines, and penalties. Keep accurate records, understand cost basis and method, report crypto-to-crypto trades, and seek professional help when in doubt; that's the recipe for smooth crypto taxes.

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