Crypto & digital assets, demystified
Crypto is simple to buy and surprisingly easy to get wrong at tax time — or to lose entirely. Here's how digital assets are taxed, tracked, secured, and passed on in the US, in plain English.
The Financial Angel does the busywork for you: it tracks cost basis across every wallet and exchange, flags taxable events, drafts your crypto tax picture and estate access plan, and routes anything requiring a license to a vetted CPA or attorney.
The IRS treats cryptocurrency as property, not currency. That means the same capital-gains rules that apply to stocks or real estate apply to crypto — every disposal is a potential taxable event.
Why it matters — it's why spending or trading crypto, not just cashing out, can trigger tax.
Gains are short-term (taxed as ordinary income) if you held one year or less, and long-term (lower rates) if held more than a year. Your gain is the sale price minus your cost basis.
Why it matters — holding just past the one-year mark can meaningfully cut the tax you owe.
Selling crypto for cash, trading one coin for another, and spending crypto on goods or services are all taxable. Receiving crypto as income is taxed too — at its value when received.
Why it matters — a coin-to-coin swap is taxable even though no cash changed hands.
Buying crypto with cash and holding it, transferring it between your own wallets, and gifting within annual limits are generally not taxable. Tax is due when you dispose of the asset.
Good fit if — you're a long-term holder who hasn't sold, traded, or spent anything yet.
Digital-asset brokers now report your sales to the IRS on Form 1099-DA. Gross-proceeds reporting began for 2025 transactions, with cost-basis reporting phasing in for 2026 — similar to the 1099-B for stocks.
Why it matters — the IRS gets a copy, so your return should match what brokers report.
Selling crypto at a loss can offset capital gains and up to $3,000 of ordinary income per year. Because crypto is property, the stock wash-sale rule doesn't clearly apply — though that could change, so tread carefully.
How the Angel helps — it spots harvestable losses and flags the rules a CPA should confirm.
Cost basis is what you paid for a coin, plus fees. When assets move across multiple wallets and exchanges, keeping an accurate basis for each lot is the hardest part of crypto taxes.
How the Angel helps — it consolidates every wallet and exchange into one clean basis ledger.
The order you're treated as selling coins — FIFO (first-in, first-out), or Specific Identification — changes your reported gain. Spec-ID can lower taxes but requires detailed, contemporaneous records.
Why it matters — the right method, well documented, can materially reduce your tax bill.
Recent IRS guidance moved toward tracking basis wallet by wallet rather than across all accounts at once. Clean per-wallet records are increasingly important for an accurate return.
Why it matters — sloppy records can inflate your taxable gains or invite an audit.
Self-custody means you hold your own private keys, so no third party can freeze or lose your funds — but you're fully responsible. Exchange custody is convenient but exposes you to hacks, freezes, or the platform failing.
Good fit if — larger balances usually belong in self-custody; small, active balances can stay on an exchange.
A hardware wallet (cold wallet) stores your private keys on a dedicated offline device, keeping them away from internet-connected computers and most malware — the standard for securing meaningful holdings.
Good fit if — you hold more crypto than you'd be comfortable losing to a hack.
Your private key (and the seed phrase that restores it) is the only proof of ownership. Anyone with it controls your funds; lose it with no backup and the assets are gone for good.
Why it matters — there's no password reset in crypto; backups are everything.
A multisig wallet requires several keys to approve a transaction — for example two of three. It removes the single point of failure of one key and is popular for businesses, families, and large holdings.
Good fit if — multiple people or entities share control of the same funds.
Rewards from staking are taxed as ordinary income at their fair market value when you gain control of them. That value becomes your cost basis, so a later sale can trigger capital gains too.
Why it matters — you can owe income tax on rewards even before you sell a single coin.
Mined crypto is ordinary income at its value when received. If you mine as a business rather than a hobby, it may be self-employment income — with related deductions but also self-employment tax.
How the Angel helps — it separates hobby from business treatment and routes it to a CPA to confirm.
Airdrops, lending interest, liquidity-pool rewards, and other DeFi income are generally taxable when received, and swaps inside protocols are usually taxable trades — an area with heavy record-keeping and evolving rules.
Why it matters — active DeFi can create dozens of taxable events you never see as cash.
When your business accepts crypto, the payment is ordinary business income at its fair-market value on the day received. That value is your basis, and any change before you convert to cash is a separate gain or loss.
Good fit if — you want to offer crypto checkout while keeping the tax and accounting clean.
Crypto activity has to flow into your books like any other asset: income recorded at receipt, gains and losses on disposal, and clean records tying wallets to your entity. See our bookkeeping guide for the fundamentals.
How the Angel helps — it books crypto transactions and reconciles them alongside your business accounts.
Crypto is lost forever if heirs can't reach your keys. A plan documents what you hold, gives secure access instructions stored apart from your (public) will, and may use a trust or LLC to hold and pass assets.
Why it matters — without an access plan, your heirs may never recover the assets. See estate planning.
NFTs are also treated as property, so buying, selling, or trading them can be taxable, and some may be taxed as collectibles at higher rates. Domains, tokens, and in-game assets can carry real value worth planning for.
Why it matters — a valuable NFT is a taxable, inheritable asset like any other.
Crypto prices can swing dramatically, projects can fail, and scams are common. This is education, not investment advice — size any position to what you can afford to lose and diversify across your overall wealth plan.
Why it matters — sound tax and custody habits don't remove market risk.
Tell the Angel where your assets live. It tracks basis across every wallet and exchange, flags taxable events, drafts your access plan, and connects you to a licensed CPA or attorney to finalize.
Start your profileThese are plain-language explanations for education, not legal, tax, or investment advice. Crypto tax treatment varies by state and changes over time — the Financial Angel drafts and recommends; a licensed CPA or attorney reviews and executes.