Understanding Your 8949 Cryptocurrency Tax Form | A Step-by-Step Guide

Signals, setups and risk math you can use

Example

Consider John, who bought 1 Bitcoin (BTC) at $30,000 on January 1st and sold it for $50,000 on December 31st. He would first complete Form 8949:

Purchase Date/Price: 1/1/2023 - $30,000
Sale Date/Price: 12/31/2023 - $50,000
Gain/Loss: $50,000 - $30,000 = $20,000 gain

Then he would transfer this information to Schedule D for his final tax return. This straightforward example demonstrates how tracking and reporting gains accurately can help in managing taxes effectively.

Question

What if I have multiple types of cryptocurrencies?

If you have multiple cryptocurrencies, make sure to separate them out by type when filling out Form 8949. Each type should be treated individually for accuracy and compliance with tax laws.

Risk management you can actually use

• Risk per trade = account equity × risk% (e.g., 1%).
• Position size = risk per trade ÷ (entry − stop).
• Expectancy (E) = win_rate × avg_win − (1−win_rate) × avg_loss.
• Cap total portfolio risk; journal every trade.

A quick example

Account $10,000, risk 1% → $100 risk per trade. Entry $50, stop $48 → $2 risk/share → 50 shares. Target $54 (2R). If stopped, −$100; if target hits, +$200 (before costs).

How much capital do I need to start?

Use an amount you can afford to lose while learning a repeatable process.

How do I size positions?

Decide a fixed risk % per trade, then divide by the price distance to your stop.

How often should I review?

Match your timeframe: DAIly/weekly for swing; weekly/monthly for long-term.

What goes into my journal?

Thesis, entry/exit, risk (R), emotions, result, next improvement.

Sources & Signals (add before publish)

• Earnings or guidance: …
• MaCRO data or policy: …
• Sector flows: …
• Unusual volume/price action: …