Crypto Chaos: How to Survive Tax Season Without Losing Your Mind! 😱💸

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What to know:

Welcome to Crypto for Advisors, CoinDesk’s weekly newsletter that’s like a treasure map for financial advisors navigating the wild world of digital assets. Subscribe here to get it every Thursday, because who doesn’t want more emails? 🙃

In today’s episode of “As the Crypto Turns,” Bryan Courchesne from DAIM spills the beans on tax planning for crypto trades. Spoiler alert: tax season is like a horror movie that’s six months away, but you still need to prepare for it. 🎃

Then, Saim Akif from Akif CPA will break down the differences in tax treatment between crypto and equities/bonds in our segment, “Ask an Expert.” (No, you can’t ask your cat.)

Crypto Taxes Are Complicated, Don’t Let Them Derail Your Portfolio

As advisors focused on crypto, we’re like the brave knights of the round table, battling the unique tax situations this asset class throws at us. For instance, crypto is not subject to wash-sale rules, which means you can harvest tax losses like a pro. It’s like gardening, but with digital coins! 🌱💰

But here’s the kicker: the number of platforms you might use is like trying to count the number of times you’ve said “I’ll start my diet tomorrow.” It’s overwhelming! 📈

Tracking your crypto taxes isn’t just a year-end chore; it’s a year-round challenge, especially if you’re juggling multiple centralized exchanges (CEXs) or decentralized platforms (DEXs). Every trade, swap, airdrop, staking reward, or bridging event can be a taxable event. It’s like a game of whack-a-mole, but with your finances! 🎪

Centralized Exchange Trading

When using CEXs like Coinbase, Binance, or Kraken, you might get year-end tax summaries, but let’s be real—they’re often about as reliable as your friend who says they’ll “totally pay you back.” One major challenge is tracking your cost basis across exchanges. 😩

For example, if you buy Amazon stock in a Fidelity account and transfer it to Schwab, your cost basis transfers seamlessly. But in crypto? If you transfer assets from Kraken to Coinbase, your cost basis doesn’t magically follow. It’s like trying to find your keys when you’re already late! 🔑

Decentralized Exchange Trading

Things get even more complicated when using DEXs. Apps like Coinbase Wallet (not to be confused with the Coinbase exchange) or Phantom connect you to decentralized trading platforms like Uniswap or Jupiter. These DEXs don’t issue tax forms or track your cost basis, so it’s all on you to log and reconcile every transaction. Good luck with that! 🥴

Miss a single token swap or forget to record the fair market value of a liquidity pool withdrawal, and your tax report could be as accurate as a fortune cookie. That could trigger IRS scrutiny or lead to missed deductions. And here’s the kicker: if you’re actively trading on DEXs, chances are you’re not even making money. But even losses must be reported correctly to qualify for a deduction. If not, you risk losing the write-off or, worse, facing an audit. Yikes! 😱

Unless you’re a full-time crypto trader, the time and effort required to track every transaction isn’t just stressful; it can cost you real money. And we all know how much we love our money! 💔

What steps can I take to make sure I’m tax ready?

There are, however, several ways to prepare properly for crypto taxes:

  • Use crypto tax software from the beginning. Even then, you’ll want to double-check that the reported activity makes sense and adjust as needed. Because who doesn’t love a good spreadsheet? 📊
  • Hire a crypto tax specialist or work with a crypto-focused advisor who understands the landscape. It’s like having a GPS for your financial journey! 🗺️
  • Download all transaction logs and see if your CPA or advisor can help build a cost basis and determine your realized gains and losses. Because let’s face it, we could all use a little help! 🤝

As adoption increases, tax reporting will undoubtedly evolve. In the meantime, keeping track of your trade activity is crucial to be ready for tax season. And remember, tax season is coming, and it’s not bringing cookies! 🍪

– Bryan Courchesne, CEO, DAIM

Ask an Expert

Q. Why are advisors watching crypto closely?

A. Institutional crypto inflows have surged to $35 billion. While crypto is more volatile than traditional assets, major cryptocurrencies like bitcoin have historically outperformed other traditional asset classes since 2012. So, yeah, it’s kind of a big deal! 💥

Q. How is crypto being treated differently from equities/bonds from a tax side?

A. Crypto differs fundamentally from equities and bonds. Advisors must track each wallet separately for cost basis (starting Jan 2025). Unlike traditional 1099s, clients often get little to no reporting support from exchanges, especially for self-custodied assets. It’s like trying to find a needle in a haystack! 🧵

Q. Do you have any special insights for CPAs and tax advisors?

A. Compliance isn’t optional anymore. Starting with 2025 returns:

  • Wallet-level cost basis reporting is mandatory. Yes, you heard that right! 📜
  • IRS Form 1099-DA will begin showing up in 2026. Mark your calendars! 📅
  • Exchanges often don’t support reporting for self-custodied assets. Surprise! 🎉

Smart tax professionals are combining tax reporting, audit defense, and DeFi accounting into premium advisory services. Because who doesn’t want to be a superhero in the world of taxes? 🦸‍♂️

– Saim Akif, founder, Akif CPA

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2025-06-19 19:25