Why Crypto Taxes Matter More Than Ever in 2021
The 2021 tax year marked a turning point for cryptocurrency regulation. With the IRS intensifying enforcement and new reporting requirements under the Infrastructure Investment and Jobs Act, accurate crypto tax reporting became non-negotiable. Failure to report transactions could trigger audits, penalties of up to 20% of unpaid taxes, or even criminal charges. This guide breaks down everything you need to navigate 2021 crypto taxes confidently.
Key Crypto Tax Events You Must Report
The IRS treats cryptocurrency as property, meaning taxable events occur when you:
- Sell crypto for fiat currency (e.g., BTC to USD)
- Trade between cryptocurrencies (e.g., ETH to SOL)
- Use crypto to purchase goods/services (e.g., buying a laptop with Bitcoin)
- Earn crypto as income (mining, staking, or freelance payments)
- Receive airdrops or hard forks (treated as ordinary income at fair market value)
Non-taxable events: Buying crypto with fiat, transferring between your own wallets, or holding long-term.
How to Calculate Your 2021 Crypto Taxes
Follow this 3-step framework:
- Identify all taxable events using exchange records, wallet statements, and DeFi transaction histories.
- Determine cost basis using FIFO (First-In-First-Out) or specific identification method. FIFO is IRS default if unrecorded.
- Calculate gains/losses: Sale price minus cost basis (including fees). Short-term gains (assets held ≤1 year) use ordinary income rates (10-37%). Long-term gains (held >1 year) enjoy lower rates (0-20%).
Example: Bought 1 ETH for $2,000 in Jan 2021. Sold for $4,500 in Dec 2021. Taxable gain = $2,500 (short-term).
Step-by-Step Guide to Filing 2021 Crypto Taxes
- Gather records: Compile 1099-B/K-1 forms from exchanges, CSV trade histories, and wallet addresses.
- Calculate totals: Use Form 8949 to detail each transaction. Summarize on Schedule D (Capital Gains).
- Report income: Include mined/staked crypto on Schedule 1 (Additional Income) or Schedule C if business-related.
- Answer Form 1040 question: Check “YES” to the virtual currency question near signature line.
- File by deadline: April 18, 2022, for most taxpayers (or October 15 with extension).
Common Crypto Tax Mistakes to Avoid
- ❌ Ignoring DeFi transactions: Liquidity pool entries/exits and yield farming are taxable.
- ❌ Forgetting cost basis: Transfers between wallets reset holding periods if not tracked.
- ❌ Misreporting airdrops: Value at receipt date is taxable income, not sale date.
- ❌ Omitting small transactions: Even $10 NFT sales must be reported.
- ❌ Using incorrect forms: Form 8949 is mandatory for asset sales—don’t rely solely on Schedule D.
Top Tools to Simplify 2021 Crypto Tax Reporting
- Koinly: Supports 700+ exchanges and 50+ blockchains. Generates IRS-ready Form 8949.
- CoinTracker: Integrates with TurboTax. Free portfolio tracking with paid tax reports.
- TokenTax: Specializes in complex DeFi/NFT transactions. CPA review available.
- CryptoTrader.Tax: Affordable option for basic trading histories. CSV upload support.
Crypto Tax FAQ: 2021 Edition
Q: Do I owe taxes if my crypto lost value in 2021?
A: Yes, if you sold or traded assets at a loss. Capital losses can offset gains and up to $3,000 of ordinary income.
Q: How are NFT sales taxed?
A: As capital gains/losses. If created and sold as a business, ordinary income rates apply.
Q: What if I used a foreign exchange?
A: You must still report transactions. Failure may trigger FBAR (FinCEN Form 114) or FATCA (Form 8938) penalties.
Q: Can I amend my 2021 return if I made errors?
A: Yes. File Form 1040-X with corrected forms. Penalties may apply for underpayment.
Q: Are stablecoin trades taxable?
A: Yes. Trading USDC for USDT is a taxable event since they’re different assets.
Disclaimer: This guide provides general information, not tax advice. Consult a CPA for personalized guidance.
