Cryptocurrency Tax Compliance Guide: Mastering IRS Requirements with Beancount.io
Cryptocurrency taxation has evolved from a niche concern to a critical compliance requirement for millions of investors. With the IRS increasing enforcement and requiring detailed reporting, accurate record-keeping isn't just good practice—it's essential for avoiding penalties and optimizing your tax liability.
This comprehensive guide shows you how to achieve complete cryptocurrency tax compliance using Beancount.io's powerful plain-text accounting system, ensuring you meet all IRS requirements while maximizing tax efficiency.
Understanding Cryptocurrency Tax Requirements
IRS Treatment of Cryptocurrency
The IRS treats cryptocurrency as property, not currency, which creates specific tax implications:
- Every transaction is potentially taxable: Trading, selling, spending, or exchanging crypto
- Cost basis must be tracked: For every unit of cryptocurrency owned
- Holding period determines tax rate: Short-term vs. long-term capital gains
- Income recognition required: For mining, staking, airdrops, and DeFi rewards
- Detailed records mandatory: Transaction-level documentation for audits
Key Tax Forms for Cryptocurrency
Form 1040 - Individual Income Tax Return
- Line 1: Report crypto income (staking, mining, airdrops)
- Schedule 1: Additional income sources
- Digital Asset Question: Must answer "Yes" if you had crypto transactions
Form 8949 - Sales and Other Dispositions of Capital Assets
- Part I: Short-term capital gains/losses (held ≤ 1 year)
- Part II: Long-term capital gains/losses (held > 1 year)
- Detailed transaction reporting: Date acquired, date sold, proceeds, cost basis
Schedule D - Capital Gains and Losses
- Summary of Form 8949: Aggregated capital gains/losses
- Net capital gain/loss: Final calculation for tax liability
Setting Up Tax-Compliant Crypto Accounting
Account Structure for Tax Reporting
Design your account hierarchy to align with tax requirements:
; Assets - Organized by holding period and source
1970-01-01 open Assets:Crypto:ShortTerm:Coinbase:BTC
1970-01-01 open Assets:Crypto:LongTerm:Coinbase:BTC
1970-01-01 open Assets:Crypto:Trading:Binance:ETH
1970-01-01 open Assets:Crypto:Investment:Ledger:BTC
; Income - Separated by tax treatment
1970-01-01 open Income:Crypto:Staking:Ordinary ; Taxed as ordinary income
1970-01-01 open Income:Crypto:Mining:Ordinary ; Taxed as ordinary income
1970-01-01 open Income:Crypto:Airdrops:Ordinary ; Taxed as ordinary income
1970-01-01 open Income:CapitalGains:ShortTerm ; Short-term capital gains
1970-01-01 open Income:CapitalGains:LongTerm ; Long-term capital gains
; Expenses - Tax deductible categories
1970-01-01 open Expenses:Crypto:Fees:Deductible ; Trading fees
1970-01-01 open Expenses:Crypto:Mining:Equipment ; Mining equipment
1970-01-01 open Expenses:Crypto:Mining:Electricity ; Mining electricity
1970-01-01 open Expenses:CapitalLoss:ShortTerm ; Short-term capital losses
1970-01-01 open Expenses:CapitalLoss:LongTerm ; Long-term capital losses
Metadata for Tax Compliance
Use metadata to track tax-relevant information:
2024-01-15 * "Buy BTC for long-term investment" ^investment-btc #long-term
purchase-date: "2024-01-15"
intended-holding: "long-term"
tax-lot-id: "BTC-001"
Assets:Crypto:LongTerm:Coinbase:BTC 1.0 BTC {45000.00 USD}
Assets:Crypto:Coinbase:USD -45000.00 USD
Expenses:Crypto:Fees:Deductible 50.00 USD
Assets:Crypto:Coinbase:USD -50.00 USD
Recording Taxable Cryptocurrency Events
1. Cryptocurrency Sales
Short-term Capital Gains (≤ 1 year)
2024-06-15 * "Sell BTC - Short-term capital gain" ^btc-sale-001
date-acquired: "2024-01-15"
holding-period: "151 days"
form-8949-code: "A"
Assets:Crypto:ShortTerm:Coinbase:BTC -0.5 BTC {45000.00 USD}
Assets:Crypto:Coinbase:USD 24000.00 USD
Expenses:Crypto:Fees:Deductible 30.00 USD
Assets:Crypto:Coinbase:USD -30.00 USD
Income:CapitalGains:ShortTerm 1470.00 USD ; 24000 - 22500 - 30
Long-term Capital Gains (> 1 year)
2025-02-01 * "Sell BTC - Long-term capital gain" ^btc-sale-002
date-acquired: "2024-01-15"
holding-period: "382 days"
form-8949-code: "D"
Assets:Crypto:LongTerm:Coinbase:BTC -0.5 BTC {45000.00 USD}
Assets:Crypto:Coinbase:USD 28000.00 USD
Expenses:Crypto:Fees:Deductible 35.00 USD
Assets:Crypto:Coinbase:USD -35.00 USD
Income:CapitalGains:LongTerm 5465.00 USD ; 28000 - 22500 - 35
2. Cryptocurrency-to-Cryptocurrency Trades
Every crypto-to-crypto trade is taxable:
2024-03-20 * "Trade BTC for ETH - Taxable exchange"
; Dispose of BTC (taxable event)
Assets:Crypto:Trading:Binance:BTC -1.0 BTC {46000.00 USD}
Income:CapitalGains:ShortTerm 2000.00 USD ; 48000 - 46000
; Acquire ETH (new cost basis)
Assets:Crypto:Trading:Binance:ETH 20 ETH {2400.00 USD}
; Trading fees
Expenses:Crypto:Fees:Deductible 40.00 USD
Assets:Crypto:Trading:Binance:USD -40.00 USD
3. Staking Rewards (Ordinary Income)
2024-01-31 * "ETH Staking Rewards - January"
reward-type: "staking"
fair-market-value: "2500.00 USD per ETH"
taxable-income: "200.00 USD"
Assets:Staking:Ethereum:ETH 0.08 ETH {2500.00 USD}
Income:Crypto:Staking:Ordinary 200.00 USD
4. Mining Income
2024-01-15 * "Bitcoin Mining Reward"
mining-pool: "Slush Pool"
block-height: "825000"
fair-market-value: "45000.00 USD per BTC"
Assets:Crypto:Mining:BTC 0.01 BTC {45000.00 USD}
Income:Crypto:Mining:Ordinary 450.00 USD
; Mining expenses (deductible)
Expenses:Crypto:Mining:Electricity 120.00 USD
Assets:Checking -120.00 USD
5. Airdrops and Hard Forks
2024-03-01 * "UNI Token Airdrop"
airdrop-source: "Uniswap Protocol"
fair-market-value: "8.00 USD per UNI"
taxable-amount: "3200.00 USD"
Assets:Crypto:Wallet:MetaMask:UNI 400 UNI {8.00 USD}
Income:Crypto:Airdrops:Ordinary 3200.00 USD
6. DeFi Activities
Yield Farming Rewards
2024-02-28 * "Compound Protocol Yield"
protocol: "Compound"
reward-token: "COMP"
fair-market-value: "85.00 USD per COMP"
Assets:Crypto:Wallet:MetaMask:COMP 12 COMP {85.00 USD}
Income:Crypto:DeFi:Ordinary 1020.00 USD
Liquidity Pool Fees
2024-02-15 * "Uniswap LP Fees Claimed"
protocol: "Uniswap V3"
pool: "ETH-USDC"
Assets:Crypto:Wallet:MetaMask:ETH 0.2 ETH {2600.00 USD}
Assets:Crypto:Wallet:MetaMask:USDC 300 USDC
Income:Crypto:DeFi:Ordinary 820.00 USD