Actually, let me explain this really quickly because some of you might not know how this works.

I got burned on this selling company stock when I was 25 because I wasn't yet familiar with gains tax rules.

If you play with crypto at ALL make sure you understand this thread. https://twitter.com/liminal_warmth/status/1387561417683857410

So you've probably heard of capital gains tax with respect to stocks before and it applies to crypto too.

The basic idea is that you put some money in an appreciating asset (stock, crypto, etc) and later when you sell that asset you owe tax on the GAIN or LOSS.

When you hear someone talk about a "cost basis," this refers to the original investment you made in the asset, and the gain or loss is calculated for tax purposes based on deviation from the cost basis at the time of the sale.

To illustrate this, let's assume I spent $2000 on Dogecoin a while ago and it's now worth $6000. If I sold that Doge today, my capital GAIN would be $4000.

This counts as income and you have to pay tax on that just like your salary.

There are "short term" gains and "long term" gains and they're taxed at different rates, and if you buy and sell within a 12-month period it's a short term gain.

These tend to be taxed more heavily than long term gains.

Here's the gotcha, though, and it's a BIG one: Any time you SPEND crypto and any time you EXCHANGE one currency for another, even if it doesn't pass through USD, it's considered a taxable event.

This is very important to understand.

You might not realize that diversifying your crypto holdings or sending crypto to purchase NFTs or anything is creating tax burden for you in the year that you do it. If you've done well in crypto, this can mess with your tax bracket at the end of the year and also surprise you.

Let's say you got in on Doge early and turned $500 into $50,000 and you're ecstatic about it. But then you get nervous and decide to get out of Doge and convert that into a split of ETH and BTC instead.

Congratulations: The IRS says you earned an extra $49,500 this year.

If you were already making $50k/year from your salary, you're now responsible for paying taxes on $99,500, and you might be displeased to have a $10-20k tax bill at the end of the year that you might have to sell some crypto to cover.

This also applies if you got a little crazy with NFTs because you won big on some altcoin. Every NFT you purchase is creating a taxable event that will generate tax burden for you on the USD value of your crypto at the time of purchase.

If you had spent all that $50k on NFTs to "Give back to artists" or whatever, the IRS doesn't care that you didn't buy an investment that's easy to liquidate. You still owe them $10-20k, which you'll now have to pay out of savings.