Capital Gains Or Capital Pains: Why Tax In Crypto Matters

Over the past year or more, there has been a shift in the way crypto enthusiasts have been approaching the industry. In gold, stocks and even crypto, traders have always existed. It just seems as though lately, trading has become the more favorable method of acquiring gains. As opposed to, buying DOGE / SHIB / XRP, holding DOGE / SHIB / XRP and making lots of money. Traders are opting for a quick 2x instead of a 10x or 100x.

Whether trading or investing. The thing to keep in mind is, how many transactions you’re making. How many marketing wallets did you send ETH or SOL, in order to get money for Dex Ads? How many wallets did you send ETH or SOL to, for helping fund liquidity or a CEX listing? How many times were you awarded / airdropped ETH or SOL for whatever reason?

Stacking your gains on-chain, chasing the next 100x and posting screenshots of your success is great. However, something most traders never stop to ask themselves is, what happens when it’s finally time to cash out.

The Game Has Changed

Really, just a few years ago, crypto was more about vision. You held Bitcoin, ETH or a few promising ALTs. You researched teams, white papers, ICOs and really tried to see if these organizations or tech could take off. The number of cryptocurrencies listed on CMC or Coin Gecko was a lot but seemed reasonable. The culture leaned toward patience, not so much panic selling or wallet tracking.

Now, it’s almost completely different. Yes, people still hold BTC, ETH and some promising ALTs. However, SOL and its cheap fees, have changed the way many people approach “investing” into crypto. Now, many want that Pump because they know it’s Fun. Wait, Elon Musk changed his PF to what? Token reaches $200M+ MC in 24hrs! Hawk Tua is spitting on things? Token reaches $100M+ MC in 24hrs. Some influencers are even launching tokens for fun, just to see what happens. ⁽¹⁾

Why Crypto Taxes Matter

If you haven’t realized by now. You’re not really rich until you officially cash out. And when you do? That’s when the real world starts asking questions, usually starting with your tax office. Most people don’t realize that every swap, every sale, even some token-to-token trades, can be considered a taxable event. You can make gains all year, although if you don’t track them, then you sell. You could owe more than you think.

Moreover, losing money later doesn’t erase the taxes on your gains from earlier. If you made $80K in alt / meme coin profits in April, then gave it all back in November. You could still owe taxes on that April win. Even if you ended the year with less than what you started with.

Bear markets don’t care. Tax bills don’t vanish. Once you start moving large amounts into fiat, that’s usually when the system wakes up and starts watching. ⁽²⁾

Reasons to Be Aware

Here’s where most people freeze up. Should you use crypto tax software to track everything? Or, should you just hire someone to deal with it all? Honestly, depending on your trading activity or technical ability with wallet synchronization. You may want to consider doing both if you can, at least for your first year.

Time Held ≠ Tax Impact

In some countries (like Germany). If you hold crypto for more than a year, you could owe zero tax on your gains. However in places like the United States. If you sell in under a year, your profit is taxed as ordinary income. That could mean losing up to 37% of it. Your timing isn’t just a charting decision, it’s a tax strategy.

Meme Coins Aren’t Securities…

You might hear that meme coins “aren’t securities,” and that might be true, depending on the jurisdiction. Although the IRS doesn’t care if you bought Doge or $PEPE, it’s all property. If you made money on it, it’s taxable. Doesn’t matter how ridiculous the coin is.

Small Transactions Might Slide

Sure, you might be able to send 1-2 SOL to a friend without raising flags. However, try using 150K in crypto to buy a car, or even a house. There is a pretty good chance it will get noticed. If your bank sees money coming in without a report to match, questions will start getting asked. In most cases, none of those questions will be fun.

Many People Round-Trip Their Gains

How many people have you seen (or heard of) who made major gains. 10x, 50x, 100x. Then lost 50% or more chasing the next 100x? There have been plenty. They just don’t talk about it. They didn’t cash out. They didn’t plan. They doubled down. Now? Most are holding bags worth less than they started with. If they’d just taken half out, even just enough to cover taxes. They wouldn’t be starting from close to zero. ^{(3, 4, 5)}

Crypto Tax Software or A Crypto Tax Professional?

Here’s where most people freeze up. Should you use crypto tax software to track everything? Or, should you just hire someone to deal with it all? Honestly, depending on your trading activity or technical ability with wallet synchronization. You may want to consider doing both if you can, at least for your first year.

Why Use Software:

• It gives you a central view of your entire crypto activity
• Tracks most of your transactions across wallets and chains
• Saves you hours of stress during tax season
• Gives you something real to bring to a crypto tax professional

However, it’s not perfect. NFTs, yield farming, LPs or obscure tokens (quick PumpFun launches etc.). Many tools still can’t classify these right. You’ll most likely need to manually clean things up, and there is a slight learning curve for each platform / app.

Why Use a Pro:

• They know how to file properly
• They can protect you from costly mistakes
• Crypto tax specialists understand the rules most accountants don’t

Although keep in mind, they’re not cheap. If you show up with a messy wallet history, you’re pretty much paying them to dig through the chaos. So you may want to think about using the software, to organize your transactions first.

If you’re technical and able to make sense of or manually add missing tokens / transactions. You may not need to hire a professional. However if you do, the hours spent on your account could be significantly less using both. ^{(6, 7)}

So We Built a Simple Tool…

While researching all of this, we figured, why not build a quick crypto tax calculator? It’s not fancy and is simply a rough estimate. Although it’s free and it gives you a rough idea of what you might owe, based on your country / region and some simple inputs. No signups. No logins. No stored data. Just use it to:

• You can play around with scenarios
• You’ll get a feel for what your taxes might look like
• You’ll quickly know whether you need software or a crypto tax expert

Free Crypto Tax Calculator / Estimator

Instructions

Final Thoughts

Yes the game has changed, yes the crypto ecosystem is thriving, yes things are bullish looking ahead. Investors turned traders in a trench warfare environment, only proves that people are hungry. Will the game return to the way it was? Or will it continue to be PVP against each other and / or each blockchain?

Please note, I’m not saying you need to pay tax. If you can avoid it, amazing. That’s your business. Some people actually know how to, legally. However not everyone is able or willing to. Either way, the earnings you gain won’t last forever. Keep them in the casino, or take profits and then really enjoy the fun money.

To learn more about crypto tax software and how it might benefit you, be sure to check out our review on Koinly. For more info on useful crypto portfolio / wallet trackers, click here.

Page Last Reviewed / Updated: 31-May-2025