Step 1: Gather ALL Transaction Data (Before January 31, 2026)

What you need from 2026:

• Exchange transaction histories: CSV exports from Binance, Coinbase, KuCoin, etc. (most issue 1099 forms by Jan 31)
• Wallet addresses & DeFi activity: All addresses used for DeFi, NFTs, bridging
• NFT marketplace transactions: OpenSea, Blur, Magic Eden activity
• Staking/Lending reward statements: From Coinbase Earn, Binance Earn, Aave, Compound, etc.
• Mining/validation income: Mining pool reports, solo mining logs
• Off-chain transactions: OTC trades, peer-to-peer transfers

December 2026 Pro Tip: Set up API connections (read-only) NOW to automatically sync 2026 data. Most tax software supports 700+ exchanges.

Step 2: Choose Your Cost Basis Method (Critical Decision)

Your method significantly impacts tax liability. Most common for 2026:

FIFO (First-In, First-Out): Default IRS method. Sell oldest coins first. Often creates highest gains.

LIFO (Last-In, First-Out): Sell newest coins first. Can be beneficial in rising markets.

HIFO (Highest-In, First-Out): Sell coins with highest cost basis first. Minimizes gains, maximizes losses.

Specific Identification: Identify exactly which coins sold (requires meticulous record-keeping).

December 2026 Recommendation: Use HIFO if your tax software supports it - typically minimizes current year tax liability. Must be consistent year-to-year once chosen.

Step 3: Calculate Gains/Losses for Each Transaction

Formula applied to every taxable event:

Capital Gain/Loss = (Proceeds - Cost Basis) × Quantity

Real 2026 Example with Binance trade:

• Purchase (March 15, 2026): 0.5 BTC at $60,000 = $30,000 cost basis
• Sale (September 20, 2026): 0.5 BTC at $80,000 = $40,000 proceeds
• Holding period: 189 days (< 1 year = short-term)
• Gain calculation: $40,000 - $30,000 = $10,000 short-term capital gain
• Tax due (24% bracket): $10,000 × 24% = $2,400 federal + state taxes

Important: Track each lot separately if using specific identification.

Step 4: Apply Holding Periods & Tax Rates

2026 holding period distinctions (US):

Short-term capital gains: Assets held ≤365 days → Taxed as ordinary income (10-37% federal)

Long-term capital gains: Assets held >365 days → Preferential rates (0%, 15%, or 20% federal)

2026 Long-term Rates by Income:

• 0% rate: Single ≤$47,025 | Married ≤$94,050
• 15% rate: Single $47,026-$518,900 | Married $94,051-$583,750
• 20% rate: Single >$518,900 | Married >$583,750

2026 Strategy: If possible, hold winning assets 366+ days for significant tax savings (15-20% savings vs. short-term).

Step 5: Calculate Income from Staking, Rewards, etc.

Ordinary income calculations (staking on Coinbase, etc.):

• Value at receipt: Fair market value when rewards are credited/available
• Example: Receive 0.1 ETH staking reward when ETH = $3,200 → $320 ordinary income
• Later sale: Additional capital gain/loss when eventually sold (cost basis = $320)

Special 2026 Note: IRS treats staking rewards as income at receipt. Some court cases challenging this, but current guidance stands.

Step 6: Report on Appropriate Tax Forms

Key US forms for 2026 crypto taxes (due April 15, 2026):

Form 8949: Detailed report of each capital asset transaction (crypto trades)

Schedule D: Summary of capital gains and losses from Form 8949

Schedule 1 (Form 1040): Additional income including crypto rewards, staking, mining, airdrops

Schedule B (if applicable): Interest income (some crypto interest reporting)

FBAR (FinCEN Form 114): If >$10,000 in foreign accounts (some crypto exchanges) at any point

Form 8938 (FATCA): Higher threshold foreign account reporting

Pro Tip: Quality crypto tax software auto-generates these forms with IRS-compliant formatting.