Crypto Taxes 101 with Awaken Tax

Everything you need to know about crypto taxes and reducing your liability

Published: Aug 25, 2025 at 19:10
Edited: Aug 26, 2025 at 09:20

Let’s start with some honesty: no one likes crypto taxes. They’re confusing, most of the crypto tax software barely seems to help, and many people wind up feeling like they overpaid. Crypto taxes combine all the complexity of traditional finance with the speed and innovation of blockchain.

For Solana users, the challenge is even greater: high transaction volume, constant DeFi activity, memecoin trading, and NFTs flying around as close to the speed of light as Toly can manage.

Crypto taxes are unavoidable, but if you understand some nuances, you can avoid common pitfalls and even take advantage of opportunities to save big time. In this article, we’ll cover the basics of how crypto is taxed, common misconceptions, and strategies Solana users can use to lower their liability.

The Basics: Taxable Transactions

Crypto taxation comes down to disposals and earnings. Any time you sell, swap, or spend crypto, you realize a capital gain or loss, and any time you receive airdrops or rewards, you earn income.

There are two main tax categories:

Capital Gains: Profits from trading or selling tokens. If you buy SOL at $20 and sell at $40, you have a $20 gain.
Income: Rewards you earn through staking, yield farming, or airdrops are treated as income at the moment you receive them, based on fair market value, and in most jurisdictions are subject to your marginal tax rate.

What is NOT taxable:

Purchasing crypto: You don’t realize a taxable event until you sell or swap an asset.
Lending & borrowing: Depositing, borrowing, and withdrawing tokens from a lending protocol does not trigger a taxable event. Only the income earned is taxable.
Staking deposits & withdrawals: Same rules as lending and borrowing. Only rewards are taxable.

It’s important to note that while rules differ by country, the core idea of capital gains and income remains consistent worldwide. For a full country-by-country breakdown, see Awaken’s Global Crypto Tax Guide.

Common Misconceptions About Crypto Taxes

Crypto is full of myths. Let’s clear up a few of the most common ones:

“I traveled to Dubai and sold my crypto there, so I don’t owe taxes at home.”
Not so fast. Most countries use tax residency rules, not location of sale. If you’re a U.S. tax resident, for example, you owe tax on your worldwide income, no matter where the transaction takes place.
“The IRS doesn’t know my on-chain wallet, only my exchange accounts.”
Think again. If you’ve ever used a centralized exchange (CEX) to fund that wallet, there’s a paper trail. The IRS already receives reports from many exchanges, and blockchain analytics are only getting more sophisticated. With potentially steep penalties for underreporting, this is not a mistake you want to make.
“Swapping tokens isn’t taxable.”
In most jurisdictions, swaps are taxable disposals. There are exceptions: Austria, Italy, and Portugal treat swaps differently, but if you’re in the U.S., Canada, Australia, or most of Europe, a swap is just as taxable as a sale.
“The SEC said memecoins don’t count!”
Wrong again. While the SEC did state that memecoins are not securities, that doesn’t mean they are not taxable. You are still required to report all memecoin transactions, including capital gains/losses, on your tax return.

How to Minimize Your Tax Liability

Taxes may be inevitable, but there are plenty of ways to soften the blow:

Tax-loss harvesting: Sell losing positions to offset gains. In the U.S. (and many countries), wash-sale rules don’t apply to crypto, meaning you can sell at a loss, immediately rebuy, and still claim the deduction.
Offsetting strategies: Pair gains with losses, and use carry-forward rules to offset future gains.
Timing disposals: In the U.S., long-term gains (assets held >1 year) are taxed at lower rates than short-term gains. Timing can make a huge difference.
Accounting methods: Some countries let you choose FIFO, LIFO, or HIFO to calculate gains. Picking the right one can reduce taxable income.
DeFi/NFT awareness: Solana DeFi moves fast, but every pool exit, NFT flip, or liquidity withdrawal could be taxable. Mindful planning reduces surprises.

Special Situations for Solana Users

Solana’s high throughput and IBRL culture have created a blockchain capable of things most other chains are not. As a result, Solana users may have a more challenging tax season than most, with more transactions to report, a portfolio of memecoins with less consistent price data, and a steady stream of airdrops as icing on the cake.

Staking Rewards: Staking rewards are taxed as income based on fair market value in USD at the time you receive them. If you later sell for a profit, that triggers an additional capital gain. The same rule applies to rewards earned through lending, LPing, and any other DeFi activity.
LST Minting & Redeeming: The Jito Foundation’s legal team, Fenwick & West, released a legal argument that minting and redeeming LSTs should not be taxable. This is not law, but this is a strong argument that Solana LST owners can reference to support the argument that these transactions aren’t taxable.
Airdrops: Generally taxable based on fair market value when they are received. Even if you didn’t ask for them.
Bridging Assets: A gray area. If bridging involves a token swap, it’s definitely taxable. If no swap occurs, you may be able to argue your bridge transactions aren’t subject to Uncle Sam’s collections, but you’ll need to be prepared to defend that stance, and you have to be consistent across your entire transaction history.
High-Frequency Trading (bots, NFT flipping): The more trades you make, the higher the risk of errors. Many smaller-cap memecoins don’t have reliable price data, so good recordkeeping is critical for the Manlets.

You can dig deeper into these edge cases in Awaken’s Solana Tax Guide.

Practical Tips for Staying Compliant

Even with the rules above, staying compliant comes down to organization:

Track everything: Every wallet, every DEX, every NFT trade. The blockchain never forgets, but your tax return depends on clean data.
Use crypto tax software: Awaken automates much of the work and prevents costly mistakes, maintains a detailed and thorough record of your transactions, and can generate every form you need to prove your on-chain history.
Know your forms: In the U.S., this often means Form 8949 for disposals and 1099-B for exchange activity.
Save fiat for taxes: Don’t get stuck being “crypto rich, cash poor.” Sell some tokens along the way to set aside tax money. Besides, you don’t want to have to explain to your family what “roundtripping fartcoin” means.

About Awaken Tax

Awaken is crypto tax software that has prioritized support for the entire Solana ecosystem. Awaken supports Solana’s major protocols, from DEXs to NFT marketplaces, and everything in between. They help tens of thousands of Solana users, and much of the Solana Foundation team, make sense of their crypto taxes each year. This guide is meant to clear up confusion, bust some myths, and give you practical tools to reduce your tax bill.

If you need a deeper dive into the fundamentals, check out Awaken’s full guide on How Crypto is Taxed in the US.

Final Thoughts

Taxes don’t have to be scary. With the right understanding, you can plan ahead, reduce your bill, and avoid last-minute panic. Whether you’re staking SOL, flipping NFTs, or farming memecoins, the key is proactive planning, not reactive scrambling.

Crypto may be fast, but tax compliance is about consistency. Take the time to learn the basics, leverage smart strategies, and you’ll not only save money—you’ll trade with peace of mind.