About & Crypto Tax Glossary

Question 1

What is Cost Basis in crypto?

Accepted Answer

The original value of an asset for tax purposes, usually the purchase price plus any fees. When you sell or dispose of a digital asset, your gain or loss is calculated as the difference between the sale proceeds and the cost basis.

Question 2

What is FIFO (First In, First Out)?

Accepted Answer

A cost basis method where the oldest lots (the ones you acquired first) are sold first. This is the default method used by most tax software and is generally the IRS default if you don't specify a method.

Question 3

What is Form 1099-DA?

Accepted Answer

The IRS information return that custodial digital asset brokers (exchanges like Coinbase, Kraken, Gemini, etc.) use to report proceeds from sales and exchanges of digital assets. Similar to Form 1099-B for stocks. First required for tax year 2025.

Question 4

What is Form 8949?

Accepted Answer

The IRS form used to report sales and dispositions of capital assets, including digital assets. Each sale is listed with the description, dates acquired and sold, proceeds, cost basis, and gain or loss. Totals from Form 8949 flow into Schedule D.

Question 5

What is the difference between short-term and long-term capital gains?

Accepted Answer

If you held an asset for one year or less before selling, the gain or loss is short-term and taxed at ordinary income rates. If you held it for more than one year, it is long-term and taxed at the lower long-term capital gains rates (0%, 15%, or 20% depending on your income).