Module 10: An Educational Overview of Digital Asset Taxation

How Digital Assets Are Treated for Tax

In most jurisdictions, digital assets are taxed as property, not currency. Think of crypto like a collectible baseball card: if you bought a card for $100 and later sold it for $150, your $50 profit is a taxable capital gain. If you hold the asset longer than a year, many countries apply lower long-term capital-gains rates; selling sooner often means higher, short-term rates.

Crypto earned through work, staking, or mining is treated like wages. Its fair-market value when you receive it counts as ordinary income— similar to getting paid in company stock instead of dollars.

Taxable Events and Reporting Requirements

Buying and Selling

Buying crypto with fiat currency generally is not taxable at the moment of purchase—it simply sets your “cost basis.” Selling crypto for fiat is taxable: gain = sale price − cost basis.

Trading Crypto for Crypto

Swapping one coin for another is treated as if you sold the first coin for its dollar value and bought the second. Any gain or loss on the coin you disposed of must be reported.

Using Crypto to Buy Goods or Services

Spending crypto is the same as selling it. Example: If you bought 1 BTC for $5 000 and later used it to buy a laptop when BTC is $50 000, you owe capital-gains tax on the $45 000 profit.

Mining, Staking, and Earned Crypto

Rewards from mining or staking are ordinary income at the coin’s value when credited to you. Those coins then have their own cost basis for future gains or losses when you sell them later.

Airdrops and Hard Forks

New coins received from an airdrop or blockchain fork are also ordinary income when they show up in your wallet. Their dollar value on that date becomes both taxable income and your cost basis.

Gifts and Donations

Giving crypto as a gift is generally not taxable to the giver (though very large gifts may require a gift-tax filing). The recipient inherits the giver’s cost basis. Donating crypto to a qualified charity can yield a deduction similar to donating appreciated stock, provided you follow appraisal and documentation rules.

Record-Keeping and Tools

Good records are your tax safety net. For every transaction, log:

• Date and time
• Amount of crypto
• Fair-market value in local currency
• Transaction fees
• Wallet or exchange used

Common accounting methods include FIFO (first in, first out) and specific-identification. Choose a method and stick to it consistently. Exchanges often let you download CSV files, and crypto-tax software can import data and populate IRS Form 8949, Schedule D, or local equivalents.

Key U.S. forms: capital gains → Form 8949 + Schedule D; self-employment income → Schedule C; gifts → Form 709. Other countries have their own schedules—check local requirements.