Coindesk: A Beginner's Guide to Digital Asset Tax Management
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Coindesk: A Beginner's Guide to Digital Asset Tax Management
Understand the core points and professional recommendations regarding cryptocurrency tax treatment in major current jurisdictions.
Navigating Web3 tides with focused insightsAuthor: Bryan Courchesne, Coindesk
Translation: Portal Labs
When discussing compliance in the Web3 world, taxation is often the most overlooked yet most challenging aspect.
Although mainland China currently does not permit cryptocurrency trading and its related tax regulations remain undefined, globally, digital assets are increasingly being incorporated into mainstream tax regulatory frameworks—especially in the United States, where reporting requirements are becoming more detailed and strictly enforced.
From the transparency of on-chain activity to tax reporting challenges on both centralized (CEX) and decentralized exchanges (DEX), down to the obligation of tracking cost basis across personal wallets, the Web3 ecosystem is being enveloped by a more sophisticated and rigorous tax framework. More importantly, once the path to compliance opens, taxation becomes the first gatekeeper.
For high-net-worth investors with global asset allocation needs, understanding these regulatory developments is not an abstract concern but a critical reference for anticipating future compliance trends and optimizing cross-border structures. Therefore, Portal Labs has compiled and translated this tax insight to help readers understand key tax treatment principles and professional recommendations across major jurisdictions.
Below is the main content.
As financial advisors deeply experienced in the crypto space, we are well aware of the unique tax scenarios associated with such assets. For example:
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Cryptocurrencies are not subject to the "wash sale rule," enabling more efficient tax-loss harvesting strategies
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Direct asset swaps (e.g., BTC-ETH or ETH-SOL) are supported without requiring conversion into fiat currency
These characteristics clearly differentiate crypto assets from traditional investments.
However, what investors must be most cautious about is the overwhelming volume of data generated across multiple platforms, which often leads to tracking difficulties during tax season.
Crypto tax management is never a last-minute year-end task—it’s a year-round effort, especially when you are actively using multiple centralized exchanges (CEX) and decentralized platforms (DEX). Remember: every transaction, swap, airdrop, staking reward, or cross-chain transfer could potentially trigger a taxable event at any time.
Tax Challenges with Centralized Exchange Trading
When investors use centralized exchanges (CEX) like Coinbase, Binance, or Kraken, the annual tax summaries provided by these platforms often suffer from two major flaws: fragmented cross-platform data and broken cost basis tracking. This stands in stark contrast to traditional securities markets—
In traditional stock trading, if you purchase Amazon shares through a Fidelity account and later transfer them to a Charles Schwab account:
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The original cost basis automatically transfers with the asset
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Each transaction updates your position data in real time
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Schwab directly generates an accurate 1099 tax form (fully reflecting annual gains and losses)
Yet in the crypto world, when you transfer assets from Kraken to Coinbase:
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Cost basis resets to zero (original purchase information does not move with the asset)
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Cross-platform movements create data black holes (requiring manual entry of each transaction)
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You face a nightmare reconstructing data at tax time (missing records lead to inaccurate tax filings)
This structural flaw forces crypto investors to establish a comprehensive transaction ledger system throughout the year. Especially when assets flow between multiple CEXs and decentralized platforms (DEX), every swap, airdrop, or even cross-chain transfer may become a trigger for tax liability.
Decentralized Exchange (DEX) Trading
The complexity intensifies when using DEXs. When connecting wallets such as Coinbase Wallet (note: not the Coinbase exchange) or Phantom to decentralized platforms like Uniswap or Jupiter, these DEXs neither provide tax reports nor track your cost basis. As a result, the full responsibility of recording and verifying every transaction falls on you.
If you miss documenting a token swap or forget to record the fair market value upon withdrawing from a liquidity pool, your tax filing could become inaccurate. This may trigger scrutiny from the IRS—or even result in loss of deduction eligibility. While some tools can calculate profit and loss for a single wallet address, they often fail when assets move between addresses, significantly reducing their practicality for active users.
Even more challenging: if you frequently trade on DEXs, you're likely to incur losses. However, even in such cases, you must accurately report transactions to qualify for loss deductions. Otherwise, you risk not only losing deduction rights but also facing tax audits.
Unless you are a professional crypto trader, the time and effort required to track every transaction aren’t just stressful—they represent real economic costs.
Q: How Can You Ensure Tax Compliance?
There are several ways to properly prepare for crypto taxation:
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Start using tax software early, but still manually verify transaction logic and correct data promptly
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Hire crypto-savvy tax professionals or financial advisors familiar with the crypto ecosystem
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Export all transaction logs and provide them to a CPA to build cost basis and calculate actual gains and losses
As adoption grows, tax reporting will inevitably evolve. Until then, consistently tracking your transaction activity is essential for preparing for tax season.
Additional Insights – Saim Akif
Q: Why Are Advisors Paying Close Attention to Cryptocurrency?
A: Institutional inflows into crypto funds have surged to $35 billion. Despite higher volatility compared to traditional assets, major cryptocurrencies like Bitcoin have outperformed traditional asset classes over the long term since 2012.
Q: How Does Tax Treatment of Crypto Assets Differ from Stocks/Bonds?
A: There are fundamental differences between crypto assets and stocks/bonds from a tax perspective.
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Wallet-level cost basis tracking: Advisors must independently calculate cost basis for each wallet (mandatory starting January 2025)
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Tax reporting gap: Exchanges rarely provide traditional 1099-style tax forms, especially for self-custodied assets
Q: What Professional Recommendations Do You Have for CPAs and Tax Advisors?
A: Compliance has become a legal requirement. For the 2025 tax year:
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Wallet-level cost basis reporting will be mandatory (per IRS Notice 2024-21)
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The IRS 1099-DA tax form will be implemented for the 2026 tax year (Infrastructure Investment and Jobs Act Section 80603)
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Reporting support for self-hosted digital assets remains largely absent among exchanges (SEC 2023 Compliance Guidance III.C.2)
Forward-thinking tax firms are integrating the following three core capabilities into premium service offerings:
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Cryptocurrency tax filing
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Tax audit defense
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Accounting for decentralized finance (DeFi)
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