Crypto Profit Calculator

This is where most people who owe unexpected tax went wrong, and the list is broader than intuition suggests.

Selling crypto for dollars is obviously a disposal. So is trading one cryptocurrency for another — swapping Bitcoin for Ethereum is a sale of the Bitcoin at its fair market value that day, and the gain is realised even though no dollars were involved.

Spending crypto is a disposal too. Buying a laptop with Bitcoin realises the gain on the Bitcoin as if you had sold it and paid cash.

Receiving crypto as income — mining, staking rewards, payment for work, most airdrops — is ordinary income at the fair market value when received, and that value becomes your basis for the eventual disposal.

What is not taxable: buying with dollars and holding, moving between wallets you control, and gifting within the annual exclusion. Donating appreciated crypto to a qualified charity is particularly efficient, since you generally deduct the market value without realising the gain.

The 2017 tax act also removed any argument that crypto-to-crypto swaps were like-kind exchanges. They are not, and have not been for years.

Your gain depends entirely on your basis, and basis is where crypto record-keeping becomes genuinely difficult.

When you hold units acquired at different prices, which ones did you sell? The default is first in, first out — the oldest units go first, which in a rising market means the largest gains.

Specific identification lets you nominate which units you are disposing of, and choosing high-basis units reduces the gain. This requires records adequate to identify the specific unit, and the identification must be made at the time of the transaction rather than reconstructed at tax time.

Reporting requirements have tightened considerably. Brokers now report gross proceeds on Form 1099-DA, and basis reporting is phasing in. The practical effect is that the IRS increasingly receives proceeds information without basis — so a return that does not report the basis will show the entire proceeds as gain.

Basis is also required to be tracked per wallet or account rather than pooled across everything you own, which is a meaningful change for anyone holding across several exchanges.

The advice that follows from all of this is unglamorous: export transaction history from every exchange regularly, keep it, and use dedicated crypto tax software if you make more than a handful of trades. Reconstructing years of history from incomplete exchange records is genuinely painful, and exchanges do shut down.

FIFO —

first in, first out — the default, and usually the least favourable in a rising market.

Specific identification —

nominating which units you sold. Requires contemporaneous records and gives the most control.

Per-wallet basis —

basis is tracked by account rather than pooled across all holdings.

Form 1099-DA —

the broker reporting form for digital asset proceeds.

Fair market value —

the dollar value at the moment of the transaction — what a crypto-to-crypto swap is measured at.

Capital losses offset capital gains without limit, and up to $3,000 of net loss can be deducted against ordinary income each year, with the remainder carrying forward indefinitely.

The notable feature of crypto is the wash sale rule — or rather its absence. For securities, a loss is disallowed if you buy a substantially identical asset within thirty days either side of the sale. Crypto has been treated as property rather than as a security, and the rule has not applied.

That has allowed a strategy unavailable in equities: sell at a loss, harvest the deduction, and buy back immediately at the same price, keeping your position while realising the loss.

This gap has been repeatedly targeted in proposed legislation and its continued availability should not be assumed. Anyone relying on it should check the current position for the tax year in question rather than acting on what was true previously.

Losses from theft or from an exchange collapse are a separate and harder question, and the treatment depends on the specific facts. It is worth professional advice rather than a rule of thumb.

Exchange fees look small and compound into something substantial for anyone who trades.

A 0.5% fee on each side of a round trip is 1% of the position, which on a 10% move is a tenth of the gain. Someone making twenty round trips a year at those rates pays 20% of their capital in fees before any tax.

Fee tiers vary enormously between venues, and the spread on thinly traded pairs is an additional cost that never appears as a line item. The quoted fee is frequently the smaller part of the total cost of trading.

On the tax side, fees genuinely help: an acquisition fee adds to your basis and a disposal fee reduces your proceeds, so both reduce the taxable gain. That is only true if you have the records, which is one more reason to keep them.

Network or gas fees paid to move assets are less clear-cut. Fees directly attributable to an acquisition or disposal are generally added to basis or netted against proceeds; fees for simply moving between your own wallets are murkier and worth asking about.