Crypto investors don’t set out to make tax mistakes—but fast-moving markets, complex DeFi mechanics, and changing rules make it easy to slip up. Below are the most common tax issues investors try to ignore (and why that’s risky), with practical fixes you can use right now. Nothing here is tax advice for your specific situation; use it as a checklist to brief your accountant.
1) Pretending crypto-to-crypto swaps aren’t taxable
In many jurisdictions, swapping one token for another counts as a disposal; gains or losses are realized at the time of exchange. In the U.S., digital assets are property, so exchanging tokens is taxable; in the U.K., using tokens or exchanging them is a disposal for Capital Gains Tax.
What to do: Track date/time, quantity, proceeds, fees, and cost basis for every swap. If you don’t specifically identify tax lots in the U.S., FIFO may apply by default.
2) Ignoring staking, mining, airdrops—and “frozen” rewards
Staking rewards are ordinary income when you gain dominion and control over them; airdrops after a hard fork are income in the year received. Even if a platform later freezes your account (e.g., during bankruptcy), rewards credited before the freeze are still income in that year.
U.K. note: HMRC may tax DeFi returns as income or as chargeable gains depending on facts; using tokens for goods/services is a disposal.
3) Misreading DeFi lending & staking
Tax often turns on beneficial ownership and the legal/economic substance of the transaction. If you transfer tokens and the platform/borrower can freely deal with them, that can be a disposal now; your later “return” may be income and/or affect gains. Read the terms, not just the UI.
What to do: Keep the agreements or T&Cs. Document whether you retained control; that evidence drives whether you realized a gain at deposit, on withdrawal, or both.
4) Assuming the U.S. wash-sale rule blocks crypto loss harvesting
Under current U.S. law, the wash-sale rule (IRC §1091) applies to “stock or securities”; crypto is treated as property, and the IRS has not extended §1091 to digital assets. That means wash-sale disallowance doesn’t currently apply to crypto—though Congress has floated bills to change this.
Caveat: If you’re a trader with a mark-to-market election for securities, different rules apply (and they’re for securities, not crypto). Don’t mix regimes.
5) Treating hacks, lost keys, or rug-pulls as automatically deductible
In the U.S., personal casualty/theft losses are deductible only for federally declared disasters through 2025; typical crypto thefts/losses don’t qualify. Businesses have separate rules, but individuals often can’t claim a deduction.
Australia: The ATO provides guidance on records and when losses/scams may (or may not) lead to a capital loss; personal-use rules are narrow.
6) Sloppy cost basis and records
In every major jurisdiction, you must keep detailed records: dates, quantities, fiat values, fees, and wallet/exchange identifiers. The IRS and ATO spell this out; HMRC uses pooling rules for most tokens, with “same-day” and 30-day rules.
Tip: In the U.S., you can specifically identify tax lots if you have complete records; otherwise FIFO applies by default. HMRC’s pooling is different—don’t assume U.S. rules abroad.
7) Overlooking global reporting shifts (CARF/DAC8) and local rules
From January 1, 2026, the EU’s DAC8 (which implements OECD’s Crypto-Asset Reporting Framework) requires crypto-asset service providers to report customers’ transactions to tax authorities, with the first reports due in 2027. Expect more cross-border data sharing and fewer “blind spots.”
UK: The U.K. confirmed it will implement CARF-aligned reporting from 2026–27; HMRC’s cryptoassets manual is actively updated.
India: Virtual Digital Asset rules impose 30% tax on gains and 1% TDS on transfers; losses cannot offset other income, and no deductions other than acquisition cost.
Canada: The CRA taxes crypto transactions under existing income/capital frameworks; classification depends on whether you’re investing or carrying on a business.
Malaysia & Hong Kong (at a glance): Malaysia primarily taxes trading profits as income (no general CGT on crypto itself; a separate CGT now applies to unlisted shares), while Hong Kong generally has no capital gains tax—profits tax can apply if you’re trading as a business. Substance and source are key.
8) Forgetting NFTs can be “collectibles”
In the U.S., the IRS signaled it may treat certain NFTs as collectibles depending on the look-through asset (e.g., art, gems). Collectibles can face a higher long-term capital gains rate and IRA consequences.
9) Misreporting when you spend crypto
Paying for goods or services with tokens is typically a taxable disposal, not a tax-free “purchase.” Plan for gains or losses every time you swipe a crypto card or send a payment. The U.K. and U.S. both treat these as disposals.
10) Confusion around 1099-DA and U.S. broker reporting
Late-2024 U.S. regulations would have expanded digital-asset broker reporting (Form 1099-DA), but in 2025 Congress used the Congressional Review Act to nullify the rule for DeFi brokers, and Treasury/IRS removed it from the Code of Federal Regulations. Some prior transition guidance for custodial brokers exists, but the DeFi rule has been overturned—watch for new legislation. Your duty to report taxable income remains.
A quick compliance checklist
- Track every transaction (date/time, quantity, fiat value, fees, wallet/exchange).
- Classify activity: investing vs. trading vs. DeFi lending/staking; capture beneficial-ownership changes.
- Record income events: staking, mining, airdrops, hard-fork airdrops; include FMV at receipt.
- Use correct basis method (specific ID vs. FIFO in the U.S.; pooling/30-day rules in the U.K.).
- Don’t assume theft/rug-pull losses are deductible for individuals in the U.S. (2018–2025 rules).
- Watch cross-border reporting (DAC8/CARF) starting 2026.
Frequently asked questions (quick answers)
Are crypto-to-crypto swaps taxable?
Usually yes (U.S. property rules; U.K. disposals).
When are staking rewards taxed?
When you have dominion and control (income at FMV at that time).
Can I deduct a stolen-coin loss on my U.S. individual return?
Not unless it’s tied to a federally declared disaster through 2025.
Does the wash-sale rule apply to crypto in the U.S.?
Not under current law (it covers “stock or securities”).
What’s changing globally?
DAC8/CARF reporting starts in 2026 across the EU (and other adopting countries).
