How to do crypto taxes

Most crypto tax confusion comes from one misunderstanding: people treat crypto like cash. It isn't. In the US, the UK, and most other countries, crypto is taxed as property. That one fact changes everything about how you report it.

Here's what that means in practice, and how to actually get through a crypto tax filing without losing your mind.

What counts as a taxable event

Not every time you touch your crypto is a taxable event. But more things are than most people expect.

Things that create a taxable event:

• Selling crypto for fiat (obvious)
• Swapping one crypto for another — ETH to USDC, BTC to ETH, anything (less obvious, but yes)
• Using crypto to pay for goods or services
• Receiving crypto as income: staking rewards, mining, airdrops, referral bonuses, salary

Things that don't:

• Moving crypto between wallets you own
• Buying crypto with fiat and holding it
• Receiving a gift of crypto (the recipient pays tax when they eventually sell; the giver may owe gift tax depending on jurisdiction)

The swap rule trips people up constantly. If you swap ETH for USDC on Uniswap, that's a disposal. You calculate your gain or loss on the ETH at that moment. The fact that you're still "in crypto" doesn't matter — you disposed of a property.

How gains and losses work

When you sell or swap crypto, your taxable gain is:

Proceeds − cost basis = gain (or loss)

Proceeds is the value you received. Cost basis is what you paid for the asset, including fees at time of purchase.

If you bought 1 ETH for $2,000 and sold it for $3,500, you have a $1,500 gain.

Whether that gain is taxed as short-term or long-term depends on how long you held the asset. In the US, assets held over 12 months qualify for long-term capital gains rates, which are lower than ordinary income rates. The UK has a similar distinction — assets held under 30 days have different rules under the "bed and breakfasting" rules.

Losses matter too. If you sell at a loss, that loss can offset other gains, reducing your total tax bill. If your losses exceed your gains, you can often carry the excess forward to future years.

Cost basis methods

Cost basis is where most of the complexity lives.

If you bought ETH at different prices over time — $1,500 in January, $2,200 in March, $1,800 in July — which ETH did you "sell" when you disposed of some? The answer depends on which cost basis method you use.

FIFO (First In, First Out): The first ETH you bought is the first you sold. In a rising market, this tends to produce higher gains because your oldest purchases are usually your cheapest.

HIFO (Highest In, First Out): The most expensive ETH you bought is sold first. This minimizes gains in the short term because you're always matching sales against your highest-cost lots.

LIFO (Last In, First Out): The most recent purchase is sold first. Not allowed in the UK. Allowed in some US situations.

In the UK, the rules are different — HMRC uses a "Section 104 pool" method, where all your holdings of an asset are averaged together. You don't get to choose FIFO or HIFO; the law dictates the calculation.

In the US, FIFO is the default if you don't specify otherwise, but you can elect HIFO or specific identification if you track lots carefully. The IRS hasn't given fully explicit guidance on crypto-specific lot identification, but the principle from equities applies.

Pick a method and stick with it. Switching methods mid-year is messy and can draw scrutiny.

DeFi makes everything harder

DeFi doesn't break the rules, but it multiplies the number of taxable events dramatically.

A single Uniswap trade involves:

1. A disposal of the token you're selling (taxable event)
2. An acquisition of the token you're buying (sets your cost basis for the next disposal)
3. Gas fees paid in ETH (reduces proceeds or increases basis depending on context)

Providing liquidity adds more layers: the deposit may be a disposal, LP tokens have their own basis, yield accrues continuously as income, and withdrawing liquidity is another disposal event.

Staking rewards are generally taxed as ordinary income at the fair market value on the date received. Some US taxpayers argued they shouldn't be taxed until sold (the Jarrett case, 2021-2022), but the IRS rejected that position for most situations. In the UK, HMRC treats most staking rewards as miscellaneous income.

If you've been active in DeFi, you almost certainly have more taxable events than you think. The only practical solution is software that can parse the actual on-chain data — not spreadsheets.

What to do if your records are a mess

A lot of people come to crypto tax season with incomplete records — exchanges that have shut down, wallets they forgot about, transactions from 2019 they can't find.

Start with what you have:

1. Pull transaction history from every exchange you've used. Most exchanges keep records for at least several years, sometimes longer.
2. Export wallet history from a block explorer (Etherscan, Solscan, etc.) for every wallet address you've used.
3. Match deposits and withdrawals between exchanges and wallets — these are transfers, not taxable events, but they need to line up.

For missing cost basis on old transactions — if you genuinely can't determine what you paid for an asset, some accountants use $0 as cost basis (meaning the full sale price is a gain). That's conservative but it's defensible. In some cases you can use contemporaneous evidence like exchange records, bank statements, or old emails.

Don't guess and don't make up numbers. Tax authorities can and do match reported gains against exchange data.

The short version

Crypto taxes come down to four things:

1. Track every taxable event (sale, swap, income)
2. Know your cost basis for each lot
3. Calculate gains and losses accurately
4. Report it on the right forms (Schedule D + Form 8949 in the US; Self Assessment in the UK)

The hard part isn't understanding the rules. The hard part is having clean data. If your transaction history is spread across twelve exchanges and six wallets across three years, manual tracking is genuinely unrealistic.

Wag3s connects to your wallets and exchanges, parses the on-chain data directly, and calculates your tax position automatically. If you want to see what your actual situation looks like, connect your wallets and check — it's free during Alpha.

Further reading

• US Crypto Tax Guide 2026 — IRS rules, Form 8949, cost basis methods
• Crypto Tax Loss Harvesting — practical playbook with jurisdiction rules
• DeFi Accounting — yields, swaps, and LP position tracking
• Wag3s Folio — automated crypto tax reports for individuals and businesses