Crypto and Taxes: Myths, Realities, and What Belongs in Your Portfolio
- David Freeze
- Sep 30
- 3 min read
Cryptocurrency continues to capture headlines, spark curiosity, and tempt investors with stories of quick wealth. But alongside the hype come persistent myths that, if believed, can lead to costly mistakes—especially when it comes to taxes.
At FREEZE | SULKOV & ASSOCIATES, we want our clients to approach digital assets with clarity. That means separating fact from fiction, understanding IRS expectations, and placing crypto in its proper role in a portfolio.
Myth #1: Trading One Crypto for Another Isn’t Taxable
Reality: Every time you exchange one digital asset for another—say Bitcoin for Ethereum—you’ve triggered a taxable event. The IRS treats that transaction as if you sold Bitcoin for dollars and immediately used those dollars to buy Ethereum. Any gain is reportable, and ignoring it can lead to IRS scrutiny.
Myth #2: If My Crypto Is Held on a Foreign Exchange, I Don’t Have to Report It
Reality: Location doesn’t erase responsibility. U.S. taxpayers must report worldwide income and assets, whether held domestically or abroad. Holding coins on an offshore exchange does not delay reporting until you “bring the money back.” The IRS is rapidly expanding its visibility into foreign platforms, and penalties for failing to report are steep.
Myth #3: Crypto Is Anonymous, So the IRS Won’t Know
Reality: While blockchain transactions are pseudonymous, they are far from invisible. The IRS has been clear: exchanges are required to issue information returns (beginning with the new Form 1099-DA), and blockchain analysis tools make it easier than ever to trace transactions. Non-reporting is not a viable strategy.
Beyond the Basics: Airdrops, Forks, and Mining
The examples above are the most common issues we see with clients. But there are far more complex scenarios that raise unique tax questions—such as airdrops, hard forks, staking rewards, and mining income. Each comes with its own reporting requirements and timing rules. A short blog can’t fully address them, but we can guide you through these situations one-on-one.
The New Reporting Landscape
Starting with the 2025 tax year, brokers and custodial exchanges must issue Form 1099-DA to both the IRS and taxpayers. This form will capture sales and exchanges of digital assets, much like 1099-B does for stocks. The era of crypto flying under the radar is over.
How Much Crypto Belongs in a Portfolio?
Beyond taxes, there’s a broader question: does crypto belong in your long-term plan?
For most investors, the answer is a very small allocation—if at all.
Crypto remains highly volatile and speculative, more like venture capital than a traditional asset class.
A well-structured portfolio may tolerate an infinitesimal slice of crypto exposure, but it should never displace core holdings like equities, bonds, and alternatives with proven roles.
Takeaways for Investors
Report everything. Treat every crypto sale, exchange, or spend as a reportable transaction.
Don’t assume geography shields you. Foreign wallets and platforms still fall under IRS rules.
Stay proportionate. Crypto may be interesting, but it should remain peripheral to your financial plan.
Get guidance. Work with a tax and financial advisor who understands the new reporting rules and how they fit within your overall strategy.
Final Word
Crypto is here to stay—but so are the IRS and its reporting requirements. Before you make your next move, make sure it’s aligned with your goals and fully compliant.
Want clarity on your crypto holdings? Schedule a consultation with our team and let’s ensure your digital assets fit within a smart, tax-efficient plan.