Accounting for cryptocurrency: a bookkeeper's guide

Crypto turns up in more client books every year, and it does not follow the habits of cash or of a normal brokerage account. The IRS treats it as property, which changes how nearly every entry gets recorded. This guide walks through the mechanics a bookkeeper needs to keep a crypto client's records clean and defensible.

It is written for people handling US returns and is current as of 2026, including the reporting rules that shifted over the past two years. Informational, not tax advice.

Crypto is property, not currency

IRS Notice 2014-21 set the rule that still governs today: virtual currency is property. Every unit a client holds carries a cost basis and a holding period, the same as a share of stock. Buying crypto with dollars is not a taxable event by itself. The tax question shows up when the client disposes of it.

What counts as a taxable event

A disposition is any moment the client parts with a coin. The value the client receives, minus what the coin cost them, is a gain or a loss you have to record. Simply holding crypto, or moving it between wallets the client controls, changes nothing for tax purposes.

• Taxable: selling crypto for dollars, paying for goods or services with it, and trading one coin for another.
• Not taxable on its own: buying crypto with dollars, holding it, and transferring it between wallets the same client owns.

The trade case is the one clients miss. When a client swaps Ethereum for Bitcoin, that single step is both a sale of the Ethereum and a purchase of the Bitcoin. You calculate gain or loss on the Ethereum using its fair market value that day, and that same value becomes the cost basis of the Bitcoin.

How gain and loss are calculated

Cost basis is what the client paid to acquire the coin, including any fees. Proceeds are the fair market value in US dollars at the moment of the disposition. Subtract basis from proceeds to get the gain or loss. Held a year or less, it is short term. Held longer than a year, it is long term. The detail lines go on Form 8949 and carry to Schedule D.

When a client has no record of what they paid, the basis defaults to zero and the full proceeds are taxed as gain. Recovering missing basis after the fact is the most time-consuming part of most crypto engagements, so press clients to save acquisition records as transactions happen rather than at filing season.

Track basis wallet by wallet

Revenue Procedure 2024-28 ended the older practice of pooling basis across a client's entire holdings. Beginning January 1, 2025, basis is tracked per wallet and per account. A client with coins on three exchanges and two self-custody wallets now needs five separate basis ledgers, and a unit's basis stays with the account that holds it.

Inside a single account, the client can use specific identification when they have records that pin down which units were sold. Without that identification at the time of sale, the sale defaults to first in, first out. Settle the method with the client before you close the year, because a specific-identification election cannot be reconstructed later.

Income, not only capital gains

Some crypto arrives as ordinary income before any capital gain question comes up. Mining rewards, staking rewards, and similar payouts count as income at their fair market value on the day the client gains control of them. Revenue Ruling 2023-14 confirmed this treatment for staking. That same value then becomes the basis used later when the client sells the coins.

Where the income lands depends on how the client operates. Mining as a hobby goes on Schedule 1 as other income. Mining as a business goes on Schedule C and owes self-employment tax. Airdrops and coins received from a hard fork are ordinary income when the client receives them, per Revenue Ruling 2019-24.

The digital asset question is not optional

Every Form 1040 opens with a question asking whether the client received, sold, exchanged, or otherwise disposed of a digital asset during the year. It has to be answered on every return, even when the honest answer is no. Checking no while the client has reportable transactions is a contradiction the IRS can spot without effort, so confirm the box matches the schedules behind it.

Form 1099-DA changed what the IRS already sees

Starting with 2025 activity, custodial brokers report gross proceeds from crypto sales on Form 1099-DA, and clients received their first copies in early 2026. Cost basis reporting on the same form phases in beginning with 2026 transactions. The IRS matches these forms against filed returns the way it has long matched stock 1099-Bs.

For you that means reconciliation. Pull the client's 1099-DA forms and line them up against your own basis ledger before filing. When a broker reports proceeds the client left off, or a basis figure that differs from your records, resolve the gap now instead of answering a matching notice months later.

Common problems worth flagging early

• Taxes are paid in dollars, not coins. A client with most of their money locked in crypto may have to sell some to cover the bill, and that sale is itself a taxable event.
• The wash sale rule does not apply to crypto as of 2026, because the IRS treats it as property rather than a security. Proposals to extend the rule to digital assets have surfaced repeatedly, so confirm current law each season.
• The 2019 letter campaign was not a one-time event. The IRS mailed more than 10,000 letters (6173, 6174, and CP2000) to crypto holders that year and has widened its data matching every year since.
• The burden of proof sits with the taxpayer. Crypto is pseudonymous, and the IRS presumes zero basis when records are missing, so clean books are the client's protection rather than a formality.

Good crypto bookkeeping is mostly discipline. Capture every disposition at its dollar value on the day it happened, keep basis separated by wallet, and reconcile against the 1099-DA before you file. Clients rarely land in trouble because their trading was complicated. They land in trouble because the records had holes.