FYI Digital Assets

🌐 Digital Assets & Cryptocurrency: What Every Taxpayer Needs to Know

Understand Your Reporting Obligations Before Tax Time

With the growing popularity of digital assets—such as cryptocurrencies, virtual currencies, and NFTs—the IRS has increased its focus on how these assets are reported and taxed. At Numeric Strategies, we want to ensure our clients are fully informed about the tax rules surrounding digital assets before they find themselves facing unexpected reporting issues or tax liabilities.

💡 What Is a Digital Asset?

A digital asset is any digital representation of value recorded on a secure distributed ledger (like blockchain). This includes:

• Cryptocurrency (e.g., Bitcoin, Ethereum)
• Virtual currency
• Non-fungible tokens (NFTs)

If an asset meets this definition, it is treated as property for federal tax purposes, not as currency.

💰 How Are Digital Assets Taxed?

The IRS treats digital assets like other forms of property. That means:

• You owe tax when you sell, exchange, or dispose of them, just like with stocks or real estate.
• All transactions must be reported in U.S. dollars, using the fair market value on the date of the transaction.

Taxable events include:

• Receiving digital assets as payment, reward, or through mining, staking, or airdrops
• Selling or exchanging one digital asset for another
• Using digital assets to purchase goods or services
• Gifting digital assets (in some cases)

🔄 Bartering & Business Use

If you receive digital assets as payment in a business or trade, the value must be reported as business income and is subject to self-employment tax.

Example: If you provide services and are paid in cryptocurrency worth $15,000, that $15,000 must be reported as business income—just as if you were paid in U.S. dollars.

🧾 Reporting Sales & Dispositions

When digital assets are sold or exchanged:

• You must calculate capital gains or losses
• Report sales on Form 8949, then summarize on Schedule D
• Short-term or long-term capital gains apply depending on how long the asset was held

Note: If you’re exchanging property other than capital assets (e.g., inventory) for digital assets, the gain/loss is considered ordinary.

⛏️ Mining, Hard Forks, and Airdrops

• Mining: Digital tokens received for mining are taxable as ordinary income at fair market value when received. If mining is part of a trade or business, this income is subject to self-employment tax.
• Hard Forks & Airdrops: If new crypto is received as a result of a hard fork and airdrop, that value is immediately taxable as ordinary income once you gain control over the asset.

Example: If you receive 25 tokens in an airdrop valued at $50, you must report $50 as income in the year received—even if you don’t sell the tokens.

📊 Recordkeeping Is Key

You are responsible for maintaining:

• Dates and prices of each transaction
• Fair market value at the time of receipt or sale
• Documentation of purchases, exchanges, and wallet activity

Some exchanges provide transaction histories, but we recommend using digital asset tracking tools to ensure accuracy.

⚠️ Watch for IRS Compliance Questions

The IRS now asks every taxpayer about digital asset activity on Form 1040. Failing to answer accurately or omitting reportable activity can result in penalties or audits.

🧭 Let Us Help You Navigate Digital Asset Taxation

Whether you’re an investor, miner, business owner, or NFT collector, the rules around digital assets are constantly evolving. At Numeric Strategies, we stay up to date so you don’t have to.

If you bought, sold, received, or mined digital assets in 2025—or plan to in 2026—contact us today to ensure you stay compliant and avoid unexpected tax surprises.

— The Numeric Strategies Team