TradingBull’s Complete Guide to Crypto Tax Season

7 min readApr 12, 2021

Whether you are an active day trader or a passive holder, taxes are likely not the first thing that comes to mind when you think about your crypto portfolio. After all, most traders want to understand and invest in the potential of new blockchain market opportunities, not file complicated tax reports.

Nevertheless, we have once again arrived at every accountant’s favorite season. As cryptocurrencies have continued to gain mainstream adoption, US tax laws have continued to evolve with the latest trends. Each year, the IRS becomes both better at detecting and stricter with enforcing non compliant crypto tax filings. It has become increasingly important for all investors, traders, and even perpetual hodl’ers to understand the proper cryptocurrency tax filing procedures.

TradingBull knows that managing the tax reporting process across several exchanges, wallets, and trading services can quickly become a complex process. Therefore, we have compiled the key pieces of information you will need this year. Check out to learn more about how these steps will be automated across all of your crypto platforms and services, within the complete TradingBull ecosystem.


The first thing to understand is that cryptocurrencies are considered a property under US tax law. This classification as property means that cryptocurrencies are subject to the same capital gains taxes as other assets such as stocks and bonds. Just like other forms of property, crypto traders incur capital gains or capital losses when selling or trading assets. More on this below.

Realized Gains / Loses

In an environment as volatile as digital assets, it is important to remember that returns are only truly earned when they have been realized. But what does this concept of “realized” mean? Realization often seems to escape many novice traders, as they see the “on screen” price of their asset change. The profits earned or losses incurred from price changes are only realized when the asset is:

  • Sold- converted to fiat or spent
  • Traded- converted to another asset
  • Earned- received in exchange for providing a good or performing a service

Though a trader’s portfolio may fluctuate +25% in just a few hours, the gains or losses are purely hypothetical (especially for tax purposes) until the digital asset has been sold for government backed currency, traded to another asset, or earned / spent on a good or service.

Taxable Event

The IRS views this realization of gains/loses as a taxable event. For cryptocurrencies, taxable events include:

  • Trading crypto to fiat currency (for example: converting BTC to US dollar, Euro, or Yen)
  • Trading one cryptocurrency for another cryptocurrency (for example: ETH to BTC)
  • Spending crypto to purchase goods or services (for example: purchasing a Tesla, pizza or NFT)
  • Earning crypto as income (for example: from a job, mining, staking, airdrop, or interest from lending activities)

Non-Taxable Events

Many purely long term investors may be unclear about the proper reporting of their crypto holdings too. As non-speculative investors, they may have only thought about the long term exposure to an emerging technology, not the regulatory oversight this brings. There are also events that every crypto trader will experience that will not trigger realized gains that result in a taxable event. These include:

  • Buying and holding crypto
  • Transferring crypto from one wallet to another

These are not taxable events because no realized gain/lose takes place. The cryptocurrency that the trader initially bought or earned (and therefore already paid the tax on that earning event) has stayed the same, without any sort of conversion or taxable event taking place.

Capital Gains Tax Contributing Factors

For those that have realized their gains, there are two main factors influencing their tax contributions. These are the individual’s income bracket and the timing of their investment.

Income Bracket

Annual income is used to distinguish individuals’ tax rates. The 2021 capital gains tax rate for individuals is:

  • 0% for those earning up to $40,000 per year
  • 15% for those earning up to $441,450
  • 20% for those earning more than that

This helpful IRS worksheet can guide you through the math.

Short Term vs. Long Term

The IRS considers any trade exercised within 12 months to be short term, and taxes these at a higher rate than long term capital gains. If a trader has owned a digital asset for more than a year, he or she will pay a significantly lower long-term capital gains tax rate on the realized gains/losses.


Accurate and detailed reporting is the best way to ensure a compliant tax filing. After verifying that traders have captured all of their investment decisions, these details must be reported in the proper IRS documentation.

Crypto capital gains / loses are recorded on the IRS Form 8949, which is used to report the sale or disposal of all capital assets, cryptocurrencies included. On the form, traders list:

  • All of cryptocurrency trades, sales, and disposals
  • The date they acquired the asset
  • The date sold or traded the asset
  • The proceeds (Fair Market Value)
  • The cost basis
  • The gains or losses for the trade

DeFi Taxes

With algorithmic lending platforms that provide liquidity in a decentralized way gaining popularity in the past year, it is important to understand the tax implications of these new tools. DeFi investment earnings are considered income, and therefore must also be reported during tax season. Liquidity Pool Tokens must be reported as capital gains income. This is because liquidity pools operate on a trade/token swap based model.

However, centralized cryptocurrency lending platforms such as BlockFi, would be taxed as ordinary income (at a lower rate). That is because these platforms return interest in the form of the digital asset that was deposited, instead of a token based system. Understanding the tax implications of these emerging financial instruments will be important for all crypto traders to understand during this year’s tax filing.

The same rules apply to yield farming and liquidity mining, but not governance tokens. On DeFi platforms that reward users in governance tokens, such as Compound, tokens earned are taxed as income at the time when they are earned. This is based on when a participant receives the governance and incentive tokens similar to COMP, and is based on the market value of the token when received. Selling of these tokens triggers a taxable event where the capital gain or loss is realized, and therefore must also be reported accordingly.

NFT Taxes

Non-Fungible Tokens have exploded in popularity in the past year. Many new investors may be filling the purchase of an NFT for the first time in 2021. But in the eyes of the IRS, they are also a form of property like all other digital assets, and are therefore reported in the same way.


Calculating capital gains and losses from crypto trading activity becomes exponentially more complex with each transaction. Since most traders utilize more than 3 exchanges, this process can be daunting for traders to manage across all of their trading platforms. Digital Asset traders need to have accurate records that keep track of their cost basis, fair market value, and USD gain or loss every time they trade, sell or spend their digital assets. Managing this entire process may take a level of diligence and time that traders simply do not have.

At TradingBull, we understand that both seasoned traders and new investors did not become involved in the crypto currency space because of their interest in taxes. Traders and investors want to understand the potential of these emerging technologies and capture the market opportunities that they can bring to the digital age. With all of a trader’s exchanges, wallets, and portfolio management tools consolidated within a single interface, the TradingBull platform will allow for a pain free and accurate way of accurately filing Digital Asset taxes. Filing accurate tax reports will no longer be an intimidating and painful process on the TradingBull platform. TradingBull gives Digital Asset traders the resources and capabilities they need to take back control of their portfolio and run with the bulls.

Check out our website, join our Telegram, ask us about our platform, stay tuned about our upcoming launch!

Note: This is not tax advice and should not be considered as tax advisory.

More info:


Pitch Deck / Whitepaper / Tokenomics

BCOs in the past: DeFi Prime: “Bonding Curves Explained”


Twitter: @_Digital_Assets