Common misconceptions about taxes on crypto
Does this article need to be translated?
Submit translations, corrections, and suggestions on GitHub, or reach out on our Community forums.
TL;DR:
- Selling, receiving, spending, or staking crypto are all taxable events that are viewed as either capital gains or income.
- Your transactions on the blockchain are visible to the public and can be tracked by tax authorities.
- In the US, even if you don’t receive a Form-1099, you still need to report all crypto activity on your tax return.
Despite the growing popularity of crypto-assets, misconceptions about how those assets are taxed continue to circulate.
With the US tax deadline right around the corner, knowing how to properly report your crypto taxes will help you avoid difficulties with your tax authorities.
Misconception: Crypto isn't taxable
As much as we’d all love for this to be true (hello, extra money!), it’s not. In most jurisdictions, crypto is taxed just like any other form of income. In the US specifically, crypto is treated and taxed as property.
If you’ve sold tokens, received crypto as a payment, swapped tokens through a liquidity pool, staked rewards, or conducted any other transaction where you saw a capital gain or loss, it creates a taxable event that you need to report to your local tax authority.
The only time crypto isn’t taxable is when you don’t receive a capital gain, loss or income. For example, if you bought crypto and held it, without making any other transactions, no taxable event would’ve occurred. Similar to when you buy stocks, you aren’t required to report them to your tax authority until a sale or exchange occurs.
There’s also a misconception that crypto-to-crypto swaps aren’t taxable, which isn’t the case either. When you trade one crypto for another (e.g. trading $BTC for $SOL), you are essentially selling one asset and gaining a new one. This creates a taxable event, requiring you to calculate and report any profit or loss based on the value of the asset when you conducted the swap. If you’re in the US, you must report each taxable event on Form 8949.
Misconception: Blockchains are anonymous
Although the creator of Bitcoin still remains anonymous, public blockchain networks are not. All transactions made on blockchains are available for the public to view and verify. For example, the Ethereum blockchain records every time an individual sends or receives ETH. If you go to etherscan.io, you can see all of the transactions occurring on the Ethereum blockchain as well as the address they’re associated with.
Because of the public nature of crypto transactions, the IRS and other foreign tax agencies are able to analyze transactions on the blockchain and link these back to your address. And since most major centralized crypto exchanges (CEXs), like Coinbase, Kraken, ByBit, etc., are required to follow know-your-customer (KYC) rules to verify their customers’ identity, these authorities can easily identify and trace accounts linked to your personal identity.
Beyond the trackable nature of blockchains, crypto regulation is constantly evolving, including data-sharing agreements. Starting in the US in 2025, all CEXs will be required to report crypto trades to the IRS using Form 1099-DA. Therefore, beginning in the 2026 tax year, a number of digital brokers will have to send crypto users the same form to report proceeds from digital transactions, and then file it with the IRS.
In addition, advances in blockchain analytics and overall better understanding of this evolving technology are anticipated to make DeFi protocols ever easier to trace. That’s why it’s so important to report your crypto transactions to your local tax authority. Failing to properly report can lead to audits, penalties, and even legal consequences.
Misconception: Airdrops and staking rewards are tax free
Every crypto user and their neighbour has received an airdrop at some point. You may have been excited to have a free token appear in your account, but unfortunately, it’s not free money. Not in the eyes of the IRS, anyway. If you’re one of many crypto users who have received an airdrop, you’ll have to report it as income to the IRS.
The IRS considers receiving airdrops and staking rewards as income the moment you receive them. This means that you owe taxes based on their fair market value at that point, even if you don’t sell them. But when or if you do decide to sell, you’ll have to calculate the capital gains or losses made on the tokens.
Therefore, in the US, if you’ve made income from an airdrop or staking rewards, you’ll have to report it on Form 1040 – Schedule 1 under “Other Income.” Any gains or losses that have resulted from selling or trading an airdropped token will need to be reported with your capital gains tax. This may be different in other jurisdictions, such as Germany, which under certain conditions views receiving an airdrop as tax-free income. It’s best to check with your local tax authority to confirm how airdrops and staking rewards are treated in your country.
Bottom line: Airdrops can be sneaky, because even if a random token popped up in your account, you still may be liable to report it if it has value. So, you may need to check your wallet regularly to make sure there aren’t any tokens of value in your account you’re not aware of.
Misconception: You only owe taxes to the IRS if you receive a Form 1099-B
No, this isn’t the case.
If you're unfamiliar with this scenario, here's a brief explanation:
The IRS wants to make sure you’re reporting your digital assets — like crypto – properly. Previously only used for stocks, Form 1099-B tracks the sale and acquisition of your assets. It shows your cost basis, overall proceeds, and capital gains and losses.
While some exchanges currently choose to issue Form 1099-B, starting with the 2025 tax year in the US, all crypto exchanges are required to send Form 1099-DA by January 31. This is another variation of Form 1099. It was created in response to criticisms claiming that it was difficult for crypto exchanges to accurately report users’ capital gains and losses. Therefore, if you’re trading on a centralized crypto exchange (CEX), you should expect to receive a version of Form 1099 yearly, starting in 2026.
However, if you don’t receive any variation of Form 1099, this doesn’t mean you don’t owe any taxes to the IRS. It could mean that you earned under the reporting threshold of $600, or you’re operating on a digital brokerage that does not yet issue a Form 1099.
Either way, the IRS requires you to self-report all taxable crypto activity on your tax return. Even if the exchange you’re trading on did not report your activity to the IRS, your crypto transactions can still be tracked. So it’s best to properly report all your crypto transactions to avoid any potential legal repercussions down the road.
Save yourself the headache, and use Crypto Tax Calculator's tax software with MetaMask
With the US tax season here, you might be wondering if there is some sort of app that helps with all this. After all, aren't automation and efficiency some of the promises of blockchain technology? When it comes to "what is the best crypto tax software for MetaMask":
**Crypto Tax Calculator is the official tax partner of MetaMask. Thanks to this integration, with a few clicks, crypto tax compliance has never been easier.
Crypto Tax Calculator can be accessed directly through the MetaMask Portfolio website. All you need to do is create a Crypto Tax Calculator account, and then connect the MetaMask accounts for which you need tax reports. We have a full walkthrough of the process in this section.
Once you get set up, Crypto Tax Calculator will import your transactions and calculate your MetaMask taxes, including complicated DeFi transactions. You can add as many accounts as you like from other wallets and centralised exchanges, to streamline the tax process and make your life easier.
Crypto Tax Calculator also provides tax reports that meet the local reporting standards of dozens of local tax authorities, such as the IRS, HMRC, ATO, CRA, and many others.