Three common crypto tax mistakes to avoid
Most crypto tax trouble comes from a few basic misreadings of the rules, repeated across a year of activity. Here are the three that cause the most notices, and how to stay clear of them.
Crypto is taxed as property, not as money. Almost every mistake below comes from forgetting that one fact. The IRS now receives sale data straight from exchanges, so gaps that used to pass unnoticed are easy to spot, and the letters that follow are built from that data.
Three mistakes show up more than any others. None of them are hard to fix once you know to look for them.
Mistake 1: not reporting what you bought with crypto
Spending crypto is a sale. When you use Bitcoin or any other coin to pay for something, the IRS treats it as though you sold the coin for its dollar value that day and then spent the dollars. If the coin was worth more than you paid for it, you have a gain to report, even though no cash ever moved through your bank account.
This catches people who think of crypto as money. Buying a laptop, a plane ticket, or a coffee with crypto is a taxable disposal. So is paying a contractor in crypto or tipping a creator. Small purchases add up to a long list of little gains and losses, and each one belongs on Form 8949.
If you spent crypto during the year, pull the history from every wallet and card you used, and match each purchase back to what you originally paid for the coin.
Mistake 2: treating coin-for-coin trades as tax-free
A stubborn myth says that swapping one coin for another is not taxable until you cash out to dollars. It is wrong. Trading Ethereum for Solana, or any coin for any other coin, is a sale of the first coin and a purchase of the second. You owe tax on the gain in the coin you gave up.
People sometimes cite like-kind exchange rules under Section 1031 to argue otherwise. Since 2018, Section 1031 has applied only to real property, so it does not cover crypto-for-crypto trades. Stablecoins are not a loophole either. Converting a coin into USDC or USDT is still a disposal of that coin.
If you traded actively, your number of taxable events is usually far higher than the number of times you moved money in or out. Every trade counts, including the ones that stayed inside the exchange.
Mistake 3: getting cost basis wrong
Cost basis is what you paid for a coin, including fees. Your gain is the sale price minus that basis. Report a basis that is too low and you overpay. Leave it blank, and the IRS may treat the whole proceeds figure as gain.
Two things trip people up. The first is forgetting to add transaction and network fees to basis, which understates what you actually paid. The second is losing track of which specific coins you sold when you bought the same coin at different prices over time.
Since January 1, 2025, you have to track basis by account rather than pooling every coin together. Basis for coins held at one exchange or wallet stays with that account, and if you moved coins between wallets you need records that follow each lot. The IRS default is first-in, first-out. You can use specific identification instead, but only if your records show exactly which units left and you chose that method at the time of the sale.
The hard part is rebuilding records across wallets and years. A pro who works only on crypto can reconstruct your basis and file it correctly.
Get matched with a crypto-tax pro →What changed for 2025 and 2026
Two shifts matter if you are filing now.
Exchanges started issuing Form 1099-DA. For the 2025 tax year, US brokers report the gross proceeds of your digital asset sales to you and to the IRS on this form. Cost basis reporting on the 1099-DA phases in later, so for now the proceeds figure the IRS sees may not reflect what you paid. If you skip basis, the number on any notice will look far larger than your real gain.
The per-account basis rule took effect at the start of 2025. If you used to track basis across all your holdings as one pool, that method no longer applies. There was a one-time safe harbor for allocating any unused basis as of the beginning of the year, so if you never reconciled your accounts, get those records in order.
What to do before you file
- Answer the digital asset question on Form 1040 honestly. It covers selling, trading, spending, and receiving crypto, not just cashing out.
- Collect a full year of history from every exchange, wallet, and card, not only the accounts that sent you a form.
- Reconcile your records against any 1099-DA you receive, and be ready to show the basis the form leaves out.
- Report every disposal on Form 8949, including coin-for-coin trades and purchases made with crypto.
- Get a specialist before you file if the records span several exchanges, DeFi, or multiple years, rather than after a notice arrives.
None of these mistakes are exotic. They come from treating crypto like cash instead of property, and clean records fix all three. The worst outcome is an IRS notice built from proceeds without basis, which almost always overstates what you owe.