If you’re a U.S. citizen living abroad and dabbling in crypto—whether trading, staking, freelancing, or just holding a bit of ETH since 2017—you still have obligations to the IRS. That’s the part many expats overlook. While crypto itself may be “borderless,” U.S. tax law is not.
So yes, even if you’re working from a rooftop café in Barcelona and getting paid in stablecoins, the IRS expects you to report it. Understanding crypto tax is crucial if you want to stay compliant while living overseas.
The IRS Doesn’t Care Where You Live
One of the most common misconceptions among expats is that moving abroad frees you from U.S. tax obligations. Unfortunately, that’s not the case. U.S. citizens and green card holders are taxed on their worldwide income—no matter where they live.
That means if you’re earning, trading, or even casually moving crypto around, you’re expected to report it. This includes:
- Swapping one coin for another (e.g., ETH to SOL)
- Selling crypto for fiat currency
- Using crypto to buy goods or services, no matter how small
- Receiving crypto as payment for freelance or contract work
- Earning staking rewards, mining income, or airdrops
- Getting “free” tokens through DeFi projects or promotions
Because the IRS classifies cryptocurrency as property rather than currency, each disposal is a taxable event.
How Crypto Tax Works for U.S. Expats
So, how does crypto tax work when you live abroad? Here’s the breakdown:
- Capital Gains
- If you sell or trade crypto, you’ll owe capital gains tax.
- Long-term gains (held over a year) are usually taxed at a lower rate.
- Short-term gains are taxed at your ordinary income rate.
- If you sell or trade crypto, you’ll owe capital gains tax.
- Crypto Income
- Payments received in crypto for work count as ordinary income.
- Mining, staking, and airdrops are also treated as income at fair market value on the day you receive them.
- Payments received in crypto for work count as ordinary income.
- Foreign Earned Income Exclusion (FEIE)
- If you’re paid in crypto for services, that income may qualify for the FEIE, which can help lower your U.S. tax bill—but reporting is still required.
- If you’re paid in crypto for services, that income may qualify for the FEIE, which can help lower your U.S. tax bill—but reporting is still required.
- FBAR & FATCA Reporting
- If you hold crypto on foreign exchanges, it might trigger additional reporting under FBAR or FATCA rules.
- If you hold crypto on foreign exchanges, it might trigger additional reporting under FBAR or FATCA rules.
Common Mistakes Expats Make with Crypto Taxes
- Thinking overseas residence exempts you from U.S. tax – It doesn’t.
- Not reporting small transactions – Even a $5 coffee paid in Bitcoin is a taxable event.
- Forgetting about staking and DeFi – Passive rewards are still taxable income.
- Not keeping records – Without accurate cost-basis records, the IRS may assume higher gains.
Capital Gains vs. Income: It’s About What You’re Doing
The kind of tax you owe depends on how you got the crypto and what you did with it.
Capital gains apply when you:
- Sell crypto for fiat
- Trade one token for another
- Use crypto to pay for anything
The IRS wants to know the difference between what you paid for the asset (your cost basis) and what it was worth when you sold or spent it. If you held it for less than a year, it’s taxed at ordinary income rates. Over a year? You might get a lower capital gains rate.
Ordinary income kicks in when you:
- Get paid in crypto
- Stake tokens and earn new ones
- Receive airdrops
- Mine coins
These are taxed based on their market value at the moment you received them, whether you sold them or not.
Reporting: Yes, You Still Need to File from Abroad
Even if you haven’t lived in the U.S. for years, you still need to file a Form 1040 every year. Since 2020, it’s had a very pointed yes/no question: “Did you receive, sell, exchange, or otherwise dispose of any virtual currency?” You’re legally required to answer it, and truthfully.
For the actual reporting:
- Form 8949 + Schedule D: For gains and losses
- Schedule 1 or C: For income, depending on how it was earned
And if you’re using foreign exchanges (which most expats do), like Bitstamp, Binance UK, or Kraken EU, you might also trigger additional reporting requirements.
FBAR and FATCA: Where Things Get Murky
If your crypto is held in accounts that also allow fiat (e.g., a euro wallet on a crypto exchange), and the total exceeds $10,000 at any point during the year, you may need to file:
- FBAR (FinCEN Form 114)
- Form 8938 (FATCA) if your foreign assets exceed $200,000 (if filing single from abroad)
Now, the IRS hasn’t given completely clear guidance on purely crypto wallets and whether they count for FBAR. But if your platform handles both fiat and crypto? Most tax professionals say it’s safer to report.
Getting Help Without Making It Worse
Look, crypto taxes are already a mess for people living in the U.S. Throw in foreign exchanges, multi-country residency, and staking rewards from protocols registered in the Cayman Islands, and it gets overwhelming, fast.
If you’re unsure what to do or worried you’ve missed something, it’s worth working with someone who actually understands crypto and expat tax rules. Teams like Expat Tax Online have seen it all before, from Americans running DAOs from Berlin to freelancers in Thailand getting paid in USDC.
They can help you figure out what needs to be reported, file the right forms (including FBAR and FATCA if needed), and make sure you’re not overpaying—especially if you qualify for things like the Foreign Tax Credit or Foreign Earned Income Exclusion.
A Final Thought
Just because you’re living abroad doesn’t mean you’re off the grid. The IRS has tightened its crypto rules, and international tax cooperation is stronger than ever. The best thing you can do? Keep records. Ask questions. And if you’re not sure what applies to you, get help from someone who gets both the tech and the tax systems.
Because the worst kind of crypto loss isn’t market-related, it’s the one you never saw coming from the IRS.