Last Updated on November 12, 2026 by Patrick Camuso, CPA
How To Not Overpay the IRS & Avoid Bankruptcy
When you receive income in cryptocurrency or have capital gains from the sale of cryptocurrency it’s important to consider the tax consequences immediately to avoid overpaying in taxes. If you do not plan your quarterly estimated tax payments in advance when you generate income or gains, there is a high likelihood that you can significantly overpay in taxes.
We’ll go over best practices for estimating your taxes, capital management and how to pay your quarterly taxes. This will help you not only avoid interest in penalties with the IRS but also help to avoid overpaying due to volatility and other risks associated with cryptocurrency.
Quarterly Estimated Payment Schedule
Receiving digital assets as compensation generally creates taxable income based on the applicable fair market value rules. A later sale or exchange can produce a gain or loss depending on the taxpayer’s basis in the asset. These transactions can contribute to an estimated-tax obligation, but cryptocurrency activity does not automatically mean that quarterly estimated payments are required.
For individuals, estimated payments are generally required when the taxpayer expects to owe at least $1,000 after withholding and applicable credits and does not satisfy an applicable safe harbor. The obligation depends on the taxpayer’s total income, withholding, credits, and tax liability for the year.
Estimated-tax installments are generally due in April, June, September, and January, subject to weekends, holidays, and other applicable rules.
Penalties & Interest
An underpayment of required estimated tax can result in an estimated-tax penalty calculated under the applicable underpayment rules. That is separate from the failure-to-pay penalty that can apply when tax remains unpaid after it is due. Interest and other penalties depend on the taxpayer’s payment history and the particular amount that remains unpaid.
Estimates & Safe Harbor
In order to properly estimate your taxes, you can take on of two approaches depending on your facts and circumstances. In our experience, most of our clients will take the ladder approach but the former can work in specific circumstances.
For individuals, the required annual payment is generally based on the smaller of 90% of current-year tax or 100% of the tax shown on the prior-year return. For certain higher-income taxpayers, the prior-year percentage increases to 110%. Special rules apply in some circumstances, including for farmers and fishermen. The correct approach should be determined from the taxpayer’s complete tax position rather than from cryptocurrency gains in isolation.
The other approach requires you to accurately calculate your taxes. In order to do this, your cryptocurrency and company accounting has to be up to date. Then you must calculate your projected tax liability based on your income and capital gains for the year. This is a process that we work with our clients on regularly. If you need help with crypto accounting and estimated tax payments, contact our team here.
Capital Management
It is important to consider you tax liabilities monthly or quarterly to avoid receiving BTC, ETH or another cryptocurrency at a high fair market value only to then have it drop significantly in price before you liquidate the crypto to pay your tax liability. I have seen companies and individuals lose their whole portfolio or very large percentages of it to this because they did not properly manage their crypto assets for tax payments.
If you receive crypto as a payment for a good or service, airdrop or generate capital gains you are taxed at the time of transaction based on the current fair market value of the asset you receive or sell. If you do not regularly estimate your taxes and move your tax liabilities into USD or stables then this can lead to you having to liquidate a large amounts of BTC, ETH or other assets at low fair market values to cover your tax liabilities when you pay your taxes for when you received the asset at a high valuation. Best practice is to liquidate at least your tax liability into USD or USDC to ensure you cover your taxes regardless of market conditions.
For example, let’s take a company that has generated $4 million in income that they received in ETH when ETH was $4,000 per coin from an NFT sale. The approximate tax liability would $1.6 million. If this company is properly planning for taxes, when they generate the $4 million in income, they will immediately trade at least $1.6 million from ETH to USD or a stable coin to avoid volatility risk. When it’s time to pay taxes, if ETH drops to $2,000 per coin this company would already have liquidated the $1.6 million to cover their taxes before the price drop. If this company neglected to do this, then they would have to liquate double the amount of ETH to over their taxes. That means they would liquidate 800 ETH rather than 400 ETH to cover the tax lability due to the IRS.
Wrapping Up
Capital management and projecting tax liabilities in advance of tax season is key to protecting your bottom line. No one wants to overpay Uncle Sam at the cost of your business or family’s finances. Businesses and individuals transacting in cryptocurrency must be especially diligent due to the volatility associated with cryptocurrency. If you set up a proper tax plan and run a successful business or investment portfolio, neglecting tax projections and capital management can cost you thousands or millions.
If you have cryptocurrency income or realized cryptocurrency capital gains Camuso CPA will help you project your tax liabilities, estimate your tax payments and properly manage your capital. At Camuso CPA, we have established a well-tested process to deliver clients with crypto assets and digital businesses accurate cryptocurrency accounting and timely tax projections.
About Camuso CPA
Camuso CPA saves you money, time and peace of mind.
We help digital asset investors and businesses maintain accurate accounting, project tax liabilities, and make informed estimated-tax and capital-management decisions throughout the year.
Camuso CPA is a national digital asset and emerging-markets specialty practice with a select private-client practice. Our clients include digital asset investors, professional traders, market makers, Web3 businesses, and private clients with complex tax and accounting needs. We’ve developed cryptocurrency specific expertise that allows us to provide tailored solutions to our clients in ways most other firm simply can’t.
Camuso CPA was one of the first CPA firms in the industry to provide their clients cryptocurrency accounting services and tax advisory. Camuso CPA was also the first CPA firms to accept cryptocurrency as a form of payment for professional services.
Learn more about us here.
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Related service: Crypto CPA.
This article is provided by Camuso CPA for general informational purposes and does not constitute legal, tax, accounting, or investment advice. Tax laws and regulations are evolving rapidly and the information presented may not reflect current guidance. Reading this article does not create a CPA-client relationship. For advice on your specific situation, schedule a consultation with Camuso CPA.
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