Capital Gains & Cost Basis Tracking

Every time you sell, trade, or spend cryptocurrency, you realize a gain or loss based on the difference between what you paid (your cost basis) and what you received. Sounds simple. In practice, if you’ve been trading across multiple exchanges for years, swapping tokens on DEXs, and bridging assets between chains, reconstructing your cost basis is a project unto itself.

We work with crypto tax software (CoinTracker, Koinly, and others) to pull transaction data from exchanges and wallets, reconcile it against your actual holdings, and calculate gains using the method that works best for your situation — FIFO, LIFO, or specific identification. The IRS requires you to report every disposal on Form 8949, and since 2024, they’re asking about digital assets right on page 1 of Form 1040. Ignoring this is not an option.

NFTs & Entertainment Industry Crypto

LA’s entertainment industry was one of the earliest adopters of NFTs — musicians releasing albums as NFTs, artists selling digital work, actors launching token-gated fan communities. The tax treatment depends on whether you’re the creator or the buyer. Creators report NFT sales as ordinary income (or Schedule C income if it’s a business activity). Buyers report capital gains or losses when they sell.

Royalty income from secondary NFT sales adds another layer. Those royalties are taxable when received, and if the platform pays in crypto, you have to track the fair market value at the time of receipt. For entertainment professionals who received crypto as payment for work — appearance fees, licensing deals, sponsorships paid in tokens — that’s ordinary income valued at the market price on the date you received it, regardless of what it’s worth when you sell.

DeFi, Staking & Yield Income

Staking rewards, liquidity pool yields, and interest earned on DeFi platforms are all taxable as ordinary income when received. The IRS confirmed this in Revenue Ruling 2023-14. That means you owe income tax on the fair market value of every staking reward the moment it hits your wallet — not when you sell it.

For California residents, this is especially costly. Since California taxes all income at ordinary rates (no capital gains discount), your staking yields face the full 13.3% on top of federal rates. We track DeFi income by protocol, value it at the time of receipt, and report it properly. If you’ve been staking for years without reporting the income, we can help you get caught up before the IRS does it for you.

Sources & References

• IRS Form 1040 Instructions
• 26 U.S.C. § 1 — Tax Imposed
• California FTB Tax Rates