Guide to Bitcoin Taxes 2024: IRS Rules and Filing Made Easy

<div fs-richtext-component="info-box" class="info-box"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4cef4c34160eab4440_Info.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Starting January 1, 2024, the Infrastructure Investment and Jobs Act requires reporting 10,000$+ crypto transactions to the IRS. Yet, the Treasury and IRS deferred digital asset reporting until new regulations are set, promising future guidance and public input on these rules. We keep you informed! </p></div></div></div>

Since 2012, Bitcoin has evolved from a digital curiosity to a mainstream asset, but its unique nature initially caused tax uncertainty. The IRS has since clarified US crypto tax rules, integrating Bitcoin into the US financial system. Explore the current Bitcoin taxation landscape and IRS regulations for 2024.

How Much Is Bitcoin Taxed?

In the US, Bitcoin is taxed as property. You pay taxes on gains when you sell, trade, or dispose of Bitcoin. Short-term capital gains (held less than a year) are taxed at income tax rates (10% to 37%), while long-term capital gains (held over a year) are taxed at reduced rates (0%, 15%, or 20%), based on your income.

There’s more info here: IRS Crypto Tax Rates

What are Bitcoin Capital Gains and Capital Losses?

Capital gains occur when you sell or exchange Bitcoin for more than its purchase price, while capital losses occur when you sell for less. These must be reported on your tax return. Gains are taxed, while losses can offset other gains and up to $3,000 of other income.

<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Blockpit's free crypto portfolio tracker takes care of record keeping for you. Automatically import transactions from exchanges and wallets and let the portfolio tracker handle the rest.</p></div></div></div>

Bitcoin Capital Gains Tax Rates

Take advantage of lower long-term capital gains tax rates by holding Bitcoin for over a year.

Short-Term Capital Gains Tax Rates

Short-term capital gains (Bitcoin held for less than one year) are taxed at your ordinary income tax rate. See the details in the table below:

Long-Term Capital Gains Tax Rates

Long-term capital gains (Bitcoin held for more than one year) are taxed at a lower rate, ranging from 0% to 20% based on your income.‍ See details in the table below:

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Learn more about capital gains tax and income tax: IRS Crypto Tax Rates

How to Calculate Bitcoin Capital Gains and Cost Basis

To calculate your capital gains, find the cost basis and fair market value (FMV) at the time of the taxable event (e.g., selling or trading). Use the formula:

Common methods for calculating cost basis include FIFO, HIFO, Specific Identification, and Average Cost. The IRS does not allow LIFO for Bitcoin.

<div fs-richtext-component="info-box" class="info-box"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4cef4c34160eab4440_Info.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Choosing a specific method can have significant tax implications. Consult a qualified tax professional to determine the best method for you.</p></div></div></div>

Keep accurate records of all transactions, including dates, amounts, FMV, and cost basis, to ensure correct calculations.

Blockpit’s crypto portfolio tracker collects, tracks and organizes all the necessary records you need for your crypto tax report. Try it now for free!

Read on: Crypto Cost Basis Methods

Mining Bitcoin: Earnings and Tax Implications

The IRS considers Bitcoin mining rewards as taxable income, based on their value when received. Declare these as self-employment or miscellaneous income. Miners can deduct related expenses like equipment and electricity. 

For more details, read our guide: Crypto Mining Taxes.

How to Optimize Your Bitcoin Taxes

Tax-Loss Harvesting: Offset Bitcoin capital gains with capital losses to reduce tax liability. Follow IRS guidelines.

Holding Period (HODL): Hold Bitcoin for over a year to benefit from lower long-term capital gains tax rates.

Capital Gains Tax (CGT) Allowance: Bitcoin profits are subject to capital gains taxes. If your total taxable income is below 44,625$ (single/married filing separately), 89,250$ (married filing jointly), or 59,750$ (head of household) in 2023, you may pay no tax on capital gains.

Maximizing Deductions: Deduct expenses related to Bitcoin mining or business activities. Keep detailed records and consult a tax professional.

Pick the Right Cost Basis Method: Choose a cost basis method (FIFO, HIFO, Specific Identification) that minimizes tax liability. Consult a tax professional to determine the best method.

Invest in IRAs: Use traditional or Roth IRAs (tax-advantaged retirement accounts) for Bitcoin investments to gain tax benefits. Be aware of restrictions and regulations.

‍Charitable Donations: Donate Bitcoin to a qualified charity for a tax deduction based on the fair market value.

Bitcoin Tax Deadlines in the US

In the US, the tax deadline for Bitcoin transactions is the same as for traditional investments. Here are the critical deadlines to keep in mind:

• April 15: Tax filing deadline for most individuals. Report crypto income on your tax return.
• June 15: Deadline for US citizens and residents living abroad.
• October 15: Final deadline if you filed for an extension.

How to File Your Bitcoin Tax Return

For US tax returns involving Bitcoin, familiarize yourself with necessary forms:

• Form 1040: The primary form for individual annual income tax returns, including income, deductions, and credits. Use it to report your overall income, including capital gains or losses from Bitcoin transactions.
• Schedule D: Reports capital gains and losses from asset sales or exchanges, such as Bitcoin. Transfer information from Form 8949 to Schedule D.
• Form 8949: Required for reporting multiple capital gains or losses on Schedule D, providing detailed transaction information. Use this form to report your capital gains or losses from Bitcoin transactions.
• Form 1099-K: Issued by cryptocurrency exchanges to users exceeding certain transaction volume and gross receipt thresholds, summarizing yearly payments.
• Form 1099-B: Provided by brokers or intermediaries to report Bitcoin sales and related details.

The specific forms needed vary based on the nature and volume of your cryptocurrency transactions and your particular tax situation.

For detailed instructions on completing these forms, please refer to our articles:
Form 8949 and Schedule D

Form 1099

<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">The IRS can audit tax returns up to six years back. Blockpit's free crypto portfolio tracker helps you keep essential records (date, type, amount, cost basis, profit, fees, etc.) organized. Try it now for free!</p></div></div></div>

How to File Your Bitcoin Taxes With Blockpit

Tired of manually entering all your trades into Form 8949? We've got you covered! As Europe's leading crypto tax firm, Blockpit offers acclaimed tax reports and pre-filled forms tailored for the United States. Our crypto tax software simplifies generating tax reports by importing transaction data from exchanges and wallets, automatically calculating capital gains or losses. It provides real-time tax calculations and shows unrealized gains or losses.

Want to see all the details? Check out the complete PDF of our crypto tax sample report.

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Other Bitcoin Tax Events

Bitcoin Gifts and Donations

<div fs-richtext-component="tax-status-tax-free" class="tax-status-pills tax-free"><div>Tax Free</div></div>

Receiving Bitcoin as a gift is tax-free for the recipient. The cost basis is inherited from the giver or based on the market value on the receipt day if unknown. Givers can donate up to 17,000$ per person annually without incurring gift tax. Donations over this amount but within the 12.92$ million lifetime exemption require filing Form 709. Donating Bitcoin to a recognized nonprofit avoids capital gains tax and is tax-deductible based on its market value. For donations over 500$, Form 8283 must be filed; for donations over 5,000$, a qualified appraisal is required.

Bitcoin Forks and Tax Implications

<div fs-richtext-component="tax-status-income-tax" class="tax-status-pills"><div>Income Tax</div></div>

A Bitcoin hard fork creates a new cryptocurrency and is treated as taxable income by the IRS at its fair market value at the time of the fork. Bitcoin holders must keep detailed records of the fork and the value of the new cryptocurrency. Future sales or exchanges of the new cryptocurrency may trigger capital gains taxes.

Bitcoin Losses, Thefts, and Frauds

<div fs-richtext-component="tax-status-tax-free" class="tax-status-pills tax-free"><div>Tax Deductible</div></div>

Bitcoin losses can offset gains on your tax return, with up to 3,000$ deductible against ordinary income. Excess losses can be carried forward to future years. 

The Tax Cuts and Jobs Act removed the ability to claim lost or stolen cryptocurrency as a capital loss for events post-2017. However, selling devalued assets can create a capital loss to offset gains. Unlisted tokens can be transferred to non-custodial wallets or burn wallets to record a loss. 

Learn more about balancing losses and gains: Offsetting Crypto Losses.