The tax policy on cryptocurrencies varies by country, but most tax authorities treat cryptocurrency as property or an asset rather than traditional currency. This means crypto transactions often create taxable events, similar to selling stocks or other investments.
Below is a clear breakdown of how crypto is typically taxed, focusing on the United States, with notes on other countries afterward.
🇺🇸 United States (IRS Rules)
1. Buying Crypto
- Not taxable unless you use it immediately to pay for something.
2. Selling or Trading Crypto
When you sell crypto for cash, trade one crypto for another, or use crypto to buy goods/services, you trigger:
- Capital Gains Tax
Capital Gain (or Loss) = Sale Price – Purchase Price (Cost Basis)
| Holding Time | Tax Type | Rate |
| < 1 year | Short-term capital gains | Taxed as ordinary income (based on your income bracket) |
| ≥ 1 year | Long-term capital gains | Usually 0%–20%, depending on income |
3. Earning Crypto
If you earn crypto through activities like:
- Mining
- Staking rewards
- Yield farming
- Getting paid in crypto
- Airdrops
This is taxed as ordinary income at the fair market value when received.
Later, if you sell that crypto, you may also owe capital gains tax.
4. NFTs
- Buying an NFT is not taxable.
- Selling or trading an NFT is capital gains taxable.
- If you create and sell NFTs, it is self-employment income.
🧾 Record-Keeping
The IRS expects you to track:
- Purchase date
- Purchase price (cost basis)
- Sale/trade date
- Sale value
- Wallet addresses and exchange logs
Crypto tax software (CoinTracker, Koinly, ZenLedger, etc.) can automate tracking.
🌍 Other Countries (General Overview)
| Country | Tax Treatment | Notes |
| Canada | Capital gains + business income | Trading frequently may be taxed as business activity. |
| UK | Capital gains tax on disposals | Income tax applies to mining/staking earnings. |
| Australia | Capital gains tax | Personal transactions under AUD 10,000 may be exempt in some cases. |
| Germany | No capital gains tax if holding > 1 year | Under 1 year = taxable like normal gains. |
| El Salvador | Bitcoin is a legal currency | Some foreign investors are exempt from capital gains. |
✅ Key Takeaways
- Crypto is generally taxed like property, not currency.
- Selling, trading, or spending crypto triggers capital gains.
- Mining, staking, and earning crypto count as taxable income.
- Good record-keeping is essential.
Michael J McCluskey 