No jargon, no scare tactics. Just the handful of rules that trip up small sellers — and the moves that keep you compliant and stop you overpaying on money that was never really income.
That single fact drives everything else. Because crypto is treated like property (think shares of stock), you owe tax on the gain — not the whole amount.
Here's the part almost everyone misses: you don't have to cash out to a bank to create a taxable event. Spending Bitcoin is a taxable event. Buying inventory with it, paying a supplier, swapping one coin for another — each one is a disposal, and the IRS treats it as if you sold that coin for its dollar value that day. If the coin went up since you got it, that's a capital gain. If it went down, that's a loss you can use.
Your cost basis is what a coin cost you — in dollars — when you got it. The gain on a disposal is simply dollar value when you spent it minus cost basis. Get the basis right and you pay tax on the real gain. Lose track of it and you're in the worst spot there is:
So the fix is boring and powerful: whenever you acquire crypto — bought it, got paid in it, mined it — record the date and the US-dollar value that day. That's your basis, and it's money in your pocket at tax time.
Say you acquired Bitcoin on three different days, then later spent 0.10 BTC (worth $6,500 that day) to restock. You get to choose which coins you spent — and the choice changes your tax bill. This is legal; it's just accounting method.
| Method | Coins counted as spent | Taxable gain |
|---|---|---|
| FIFO | Oldest first (Lot A, $4,000) | $2,500 |
| LIFO | Newest first (Lot C, $6,100) | $400 |
| HIFO | Highest-cost first (Lot C, $6,100) | $400 — least gain |
FIFO is the IRS default and the simplest. HIFO — highest-cost-first — usually produces the smallest gain, so you keep more. The catch: to use anything but FIFO you must be able to specifically identify which lots you spent, with records to back it up. Which brings us back to keeping a clean ledger.
Starting with the 2025 tax year, US exchanges issue a Form 1099-DA reporting your crypto activity to you and the IRS. Good — it means the days of assuming nobody's watching are over. But there's a nasty edge:
An exchange can only report what it can see. The moment you move coins between wallets or exchanges — which anyone dealing off-platform does constantly — it loses sight of your original cost. Very often it then reports your basis as zero, overstating your gain and setting you up to overpay. If you just file whatever the 1099-DA says, you may hand over tax you never owed.
These apps report your gross receipts on a Form 1099-K — and the reporting threshold has dropped sharply, so far more sellers are suddenly getting one.
The trap is the word gross. A 1099-K is every dollar that came in through that app — including refunds you issued, money a friend sent you for dinner, and sales you already counted elsewhere. It is not your taxable income. If you file on the raw 1099-K number, you overpay, sometimes badly.
What to do: reconcile each 1099-K against what you actually sold through that app, and be ready to explain the gap — refunds, personal transfers, double-counted sales. You report the real income and keep the note that shows why it differs from the gross.
No app files a form on your cash sales, but cash income is still taxable, and "I forgot" isn't a defense if it ever comes up. The upside: cash you track properly sits in the same books as everything else, so your total income is one clean number instead of three piles you're guessing at in April.
The through-line of this whole guide: every dollar, however it arrived — coin, app, or cash — belongs in one set of records. That's what turns tax season from a panic into a printout.
Record what you buy and spend (or import it), and it matches your lots, splits short- from long-term, computes FIFO / LIFO / HIFO, reconciles your 1099-K, and exports a Form 8949 for your software or a summary for your accountant. Nothing is uploaded — it all lives in one file you control. Free to start.