Crypto Taxes USA: 2024 [IRS Rules]

As the use of cryptocurrency continues to grow, it is essential to understand the tax implications of buying, selling, and trading digital assets. In the United States, the IRS (Internal Revenue Service) has clear guidance on reporting cryptocurrency transactions for tax purposes, and failure to comply can result in penalties and fines. This guide aims to provide an overview of crypto taxes in the US, including what forms to use, how to calculate gains and losses, and tips for reporting accurately and efficiently.

Expert verified
by
Mag. Georg Brameshuber

Key Takeaways

  • Cryptocurrency is treated as property, subject to capital gains and income tax.
  • Losses from crypto transactions can be used to offset gains and reduce your overall tax liability.
  • Failure to report crypto taxes can result in fines and criminal charges.
  • Tax deadlines for cryptocurrency are the same as those for traditional assets.
Written by
Florian Wimmer
Last Updated:
February 15, 2024
Chapter 1

Crypto Tax Basics

The basics of cryptocurrency taxation in the USA.

<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. Stay informed: IRS</p></div></div></div>


How is Crypto Like Bitcoin Taxed in the USA?

In the US, cryptocurrency transactions, including Bitcoin, are taxable under IRS regulations.

Various forms are needed for reporting, with Forms 1099 for cryptocurrency income, Form 8949 for capital gains, and Forms 1099-B for other transactions. Payments received in cryptocurrency for services require Form 1099-MISC, and NFT transactions need Form 1099-NEC. All necessary forms must be submitted to the IRS, regardless of the tax amount owed.

The particular tax consequences for your cryptocurrency activities will vary depending on several variables, including the type of transaction, the length of the holding period, and the cryptocurrency’s cost basis.

Accurate reporting is crucial to avoid penalties and fines.

Everything you need to know to plan and file your cryptocurrency taxes in the US will be covered in this article.

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What are Crypto Capital Gains and Capital Losses?

Crypto capital gains and losses are the profits or losses from selling or exchanging cryptocurrencies like Bitcoin.

In the US, the IRS treats crypto as property, applying capital gains taxes. Selling crypto for more than its purchase price results in a capital gain; selling for less results in a capital loss. These must be reported on tax returns and are taxed according to the holding period and the taxpayer's tax bracket.

Short-Term vs. Long-Term Capital Gain or Loss

Understanding the IRS's classification of cryptocurrency transactions is crucial. Cryptocurrency income is classified as either short-term or long-term capital gains, with short-term gains taxed at the marginal rate and long-term gains at lower rates. Maintain detailed records of cryptocurrency transactions and report them to the IRS during tax filing. Also, track trading-related expenses, as they can reduce your taxable 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 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>

Crypto Tax Rates for Tax Year 2022 / 2023

crypto capital gains tax rates for short-term and long-term gains
Crypto Tax Rates for Tax Year 2022 / 2023

Short-Term Capital Gains Tax Rates

Short-term capital gains (assets held for less than one year) are taxed at the taxpayer’s ordinary income tax rate, which ranges from 10% to 37%.


2022 Short-Term Federal Income Tax Rate Brackets:

2022 Short-term Federal Income Tax rate brackets
2022 Short-Term Federal Income Tax Rate Brackets

2023 Short-Term Federal Income Tax Rate Brackets:

2023 Short-term Federal Income Tax rate brackets
2023 Short-Term Federal Income Tax Rate Brackets


Long-Term Capital Gains Tax Rates

Long-term capital gains (assets held for more than one year) are taxed at a lower rate, ranging from 0% to 20% based on the taxpayer’s income.

2022 Long-Term Federal Income Tax Rate Brackets:

2022 Long-term Federal Income Tax rate brackets
2022 Long-Term Federal Income Tax Rate Brackets

2023 Long-term Federal Income Tax Rate Brackets:

2023 Long-term Federal Income Tax rate brackets
2023 Long-Term Federal Income Tax Rate Brackets

How Do Crypto Tax Brackets Work?

The tax rates on cryptocurrency gains in the US are based on the taxpayer’s income tax bracket. The tax brackets are an assortment of income levels to which a specific tax rate is applied. Your tax rate will rise as your income level increases.

The purpose of income tax brackets is to create a progressive tax system where higher earners pay a greater proportion of their income in taxes.

The United States has seven federal income tax brackets for the tax year 2023:

<figure class="block-table">
<table>
<thead>
<tr>
<th>Income Range</th>
<th>Income Tax Rate</th>
</tr>
</thead>
<tbody>
<tr>
<td>Under 11,000$</td>
<td>10%</td>
</tr>
<tr>
<td>11,001$ to $44,725$</td>
<td>12%</td>
</tr>
<tr>
<td>44,726$ to 95,375$</td>
<td>22%</td>
</tr>
<tr>
<td>95,376$ to 182,100$</td>
<td>24%</td>
</tr>
<tr>
<td>182,101$ to 231,250$</td>
<td>32%</td>
</tr>
<tr>
<td>231,251$ to 578,125$</td>
<td>35%</td>
</tr>
<tr>
<td>Over 578,125$</td>
<td>37%</td>
</tr>
</tbody>
</table>
</figure>

If someone has an income of $75,000 in a year, their taxable income falls into three brackets.

The first 11,000$ is taxed at 10%, the next 33,725$ (44,725$ – 11,000$) is taxed at 12%, and the remaining 30,275$ (75,000$ – 44,725$) is taxed at 22%.

So their total tax bill would be calculated as follows:

11,000$ x 10% = 1,100.00$
33,725$ x 12% = 4,047.00$
30,275$ x 22% = 6,660.50$
Total tax bill = 11,807.50$

Learn more about this: Crypto Tax Rates USA

How to Calculate Crypto Capital Gains

To calculate your crypto capital gains, you need to determine your cryptocurrency’s cost basis and fair market value (FMV) at the time of the taxable event. The taxable event can be selling, trading, or exchanging cryptocurrency for goods or services.

To calculate your capital gains or losses, you can use the formula:

crypto capital gains formula
Crypto capital gains formula

It is important to keep accurate records of all cryptocurrency transactions, including the date, amount, FMV, and cost basis, to correctly calculate your capital gains or losses.

<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 crypto portfolio tracker collects, tracks and organizes all the necessary records you need for your crypto tax report. Try it now for free!</p></div></div></div>

Table of content
Chapter 2

Taxation of Crypto Transactions

A breakdown of various crypto transactions and their taxation.

Capital Gains Tax Events

<div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div>

Capital gains tax events are certain acts, such as the sale or exchange of an asset, that result in a taxable capital gain or loss.

capital gains tax crypto transactions
Capital gains tax events

Income Tax Events

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

When cryptocurrency earnings are significant, the IRS categorizes some crypto transactions as subject to income tax.

crypto income tax events
Income tax events

Non-Taxable Events

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

Non-taxable events in the context of cryptocurrency refer to situations where the disposition of crypto assets does not trigger any tax liability.

tax free crypto transactions
Tax free events

It is important to note that while these events may not trigger a tax liability, they may still need to be reported on your tax return for record-keeping purposes.

Selling Crypto for Fiat

<div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div>

In the US, selling cryptocurrency for fiat is taxable. Report capital gains or losses on your tax return, determined by the difference between the sale price and the cryptocurrency's cost basis. Gains are taxed according to your tax bracket, while losses can offset gains or be deducted on your tax return up to a limit.

Buying Goods and Services Using Cryptocurrencies

<div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div>

Buying goods and services with cryptocurrencies can incur taxes, similar to selling crypto for fiat. The tax event is the difference between the crypto's purchase price and its value at the time of buying goods or services, resulting in a capital gain or loss depending on the value change.

Trading One Crypto for Another

<div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div>

In the United States, trading one cryptocurrency for another is taxable, with capital gains or losses depending on profit or loss. The tax calculation involves subtracting the cost basis (original purchase price) from the fair market value of the sold cryptocurrency to find the capital gain or loss.

Crypto Margin Trading, Futures and Other CFDs

<div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div>

Crypto margin trading, futures, and other CFDs (contracts for difference) are generally taxed as capital gains or losses in the US, based on the difference between the cost basis (usually the purchase price) and the fair market value at the time of the trade.

NFTs

<div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div>

NFTs are taxed like cryptocurrencies, with capital gains tax on profits from sales or trades. Selling an NFT within a year incurs short-term capital gains tax at ordinary income rates. Holding an NFT for over a year subjects you to lower long-term capital gains tax rates.

Receiving Cryptocurrency as Salary

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

The fair market value of cryptocurrency determines the income declared on tax returns. For example, if an employee is paid in cryptocurrency, their W-2 reflects its value on receipt. Gains or losses after holding the cryptocurrency for a year are taxed at capital gains rates.

Receiving Cryptocurrency in Exchange For Goods and Services

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

Receiving cryptocurrency for goods or services is taxed as ordinary income, based on the cryptocurrency's fair market value at the exchange time. This value, determined by the exchange rate on the transaction day from a credible source, must be reported on tax returns.

Not reporting this income can lead to penalties and interest.

Staking Rewards

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

Staking rewards are taxed as income, with their fair market value upon receipt added to your annual taxable income. The cryptocurrency type and staking duration can influence tax treatment. Accurate record-keeping of staking rewards and their receipt dates is crucial for determining tax obligations. Crypto tax software can aid in accurate reporting and ensure compliance with tax regulations.

Learn more about this: US Staking Taxation

DeFi Transactions

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

The latest IRS guidance indicates that DeFi transaction taxes hinge on earning or disposing of cryptocurrency. Earning occurs when you receive extra coins or tokens from transactions, applicable to many DeFi activities.

Despite the lack of clear IRS guidelines for DeFi, certain tax treatments are considered relevant and applicable.

DeFi taxation examples
DeFi Taxation

Mining Rewards

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

In the U.S., mining rewards are taxable income, valued at the time of receipt. They should be reported as self-employment or miscellaneous income, based on the miner's situation. Miners can often deduct costs like equipment and electricity as business expenses. Consulting a tax professional for accurate reporting of mining rewards and expenses is advised.

Airdrops

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

Airdrops are taxed based on their fair market value on the receipt day, and this value must be included in your gross income for that tax year. Taxes on the airdrop depend on your tax bracket. Accurate record-keeping of each airdrop, including the date and value, is essential for correct tax reporting.

taxation of airdrops and hardforks
Airdop & Hardfork Taxation

Hard Forks

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

When a hard fork creates a new cryptocurrency distributed to original holders, it's generally taxable income at the fair market value at the fork time, despite a lack of specific IRS guidance. Future sales or exchanges of the new cryptocurrency may incur capital gains tax. Accurate records of the fork's date and value are crucial for correct tax reporting.

Referral Bonuses

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

Cryptocurrency referral incentives are taxable income and must be declared on your tax return. The cryptocurrency’s fair market value on the day you receive the bonus often determines its value.

Keep thorough records of the referral bonus you received, the cryptocurrency’s fair market value on the day you received it, and any related costs or fees.

Other Crypto Rewards (Learn to Earn, Play to Earn, etc.)

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

Increasingly, incentive systems reward users with cryptocurrencies for tasks, games, or learning, with the fair market value at receipt considered taxable income. Such earnings are typically taxed as income. Fair market value can be determined from market data providers or exchanges. For accurate tax reporting, individuals should keep detailed records of these earnings, noting the receipt date and value at that time.

Buying Crypto with Fiat Money (Cash)

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

Purchasing crypto with FIAT money isn't taxable, but subsequent actions with the crypto may trigger tax obligations. Taxes apply upon selling, trading for another asset, or using it for purchases, based on capital gains or income from any profit. Receiving crypto as payment for services requires reporting it as income on your tax return.

is buying crypto taxable?
Taxes on Buying Crypto

HODLing Crypto

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

Holding crypto long-term isn't taxable, but selling or exchanging it later may incur capital gains or losses based on its sale or exchange value. Interest or staking rewards earned during this period should be reported as income on your tax return.

Crypto Donations

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

Donating cryptocurrency to a recognized nonprofit doesn't trigger capital gains or losses, per the IRS, and isn't subject to capital gains tax. Such donations are tax-deductible, with the deduction based on the crypto's fair market value on the day of donation.

To check a charity’s 501(c)3 status in the US, use the IRS’s database of exempt organizations. If you want to claim your donation as a tax deduction on your federal taxes, the charity must have 501(c)3 status. When you file your cryptocurrency taxes, you must complete Form 8283 if your donation exceeds 500$. Also, the IRS is explicit that you must obtain a qualified appraisal to claim a deduction for cryptocurrency donations worth more than 5,000$.

Receiving Crypto as a Gift

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

Receiving crypto as a gift isn't taxable upon receipt. The recipient inherits the crypto's cost basis from the giver. If the cost basis is unknown, it's determined by the crypto's fair market value on the day of receipt.

Giving Crypto as a Gift

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

Up to 17,000$ in cryptocurrency can be gifted tax-free per person. The annual gift tax exclusion is what it is called.

This can reduce your overall tax burden by taking advantage of lower income tax rates in your household. If your donation exceeds this amount, as long as it doesn’t exceed the lifetime gift tax exemption (12.92$ million in 2023), you won’t be required to pay gift tax. But you might have to submit Form 709.

Transferring Crypto Between Wallets

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

In the United States, transferring cryptocurrency between wallets isn't a taxable event, so no taxes are owed for such transfers. It's crucial, however, to maintain records of your crypto assets' cost basis for accurately reporting future gains or losses upon sale or disposal.

Using Crypto Assets as Collateral for a Loan

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

No, using cryptocurrency as collateral for a loan is not taxable because there isn’t a sale or other disposition happening to the cryptocurrency.

Yet, depending on the fair market value of the crypto assets at the time of seizure, the lender may have a taxable event if the borrower defaults on the loan and the lender seizes the cryptocurrency assets.

Crypto Losses

<div fs-richtext-component="tax-status-tax-deductable" class="tax-status-pills"><div>Tax Deductable</div></div>

Crypto losses can offset capital gains, with up to 3,000$ deductible against ordinary income if losses exceed gains, and excess losses carried to future years. Documentation and reporting are essential. Note, crypto losses cannot offset gains from other investments.

Crypto Fees

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

Crypto fees can be categorized into two types:

  • Transfer fees: These are fees paid to the network for processing a cryptocurrency for sending or receiving crypto. Transfer fees are not tax-deductible and cannot be used to reduce your taxable income.
  • Trading fees: These are fees paid to a cryptocurrency exchange or broker for executing a trade. Trading fees are considered deductible expenses and can be used to offset capital gains made from selling cryptocurrency.

Lost or Stolen Cryptocurrencies

The IRS no longer allows crypto investors to claim lost or stolen cryptocurrency as a capital loss following the Tax Cuts and Jobs Act.

Previously, losses due to theft or calamity could be written off, but now such deductions are disallowed. Losses pre-2017 may still be deductible with proper documentation. Investors can't deduct losses from scams, lost private keys, or similar situations. However, selling depreciated assets to realize a capital loss for offsetting gains remains an option.

Unlisted tokens might be exchanged through non-custodial wallets or sent to a burn wallet as a last resort.

Learn more about this: Offsetting Crypto Losses

Exchange Bankruptcies

<div fs-richtext-component="tax-status-tax-deductable" class="tax-status-pills"><div>Tax Deductable</div></div>

When a crypto exchange becomes bankrupt, the losses incurred by investors are treated as capital losses, which can be used to offset capital gains and reduce taxable income.

However, the specific tax implications will depend on the individual circumstances of each investor and should be discussed with a qualified tax professional.

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Chapter 3

Optimizing Your Crypto Tax Report

Simple ways to optimize your transactions and reduce your tax burden.

How to Calculate Your Crypto Cost Basis in the US?

To calculate capital gains or losses on crypto assets in the US, you must know the "cost basis" or original purchase price. Common methods for determining crypto cost basis include FIFO (First-in, First-out), HIFO (Highest-in, First-out), Specific Identification, and Average Cost. As of 2021, the IRS hasn't explicitly allowed the LIFO (Last-in, First-out) method for crypto cost basis calculations. The method chosen can significantly impact taxes, so consulting a tax professional is advised.

It is important to note that the specific method you choose can have significant tax implications, and it is best to consult with a qualified tax professional to determine which method is right for you.

Read on: Crypto Cost Basis Methods

Ways to Reduce Your Cryptocurrency Taxes

There are several ways to reduce your crypto taxes in the US. Here are some strategies you can consider:

Tax-Loss Harvesting

If you have capital losses from your crypto transactions, you can use them to offset your capital gains and reduce your tax liability. This is known as tax-loss harvesting. Be sure to follow the IRS guidelines for tax-loss harvesting to ensure you use the strategy correctly.

Holding Period/HODL

If you hold your crypto assets for over a year, you will be subject to long-term capital gains tax rates, generally lower than short-term rates. Consider holding your assets for at least a year before selling or exchanging them to take advantage of these lower rates.

Charitable Donations

Donating crypto assets to a qualified charity can result in a tax deduction for the fair market value of the assets at the time of the donation. This can reduce your tax liability and support a good cause simultaneously.

Maximizing Deductions

If you are mining crypto or using it for business purposes, you may be able to deduct certain expenses related to your activities. Be sure to keep careful records and consult with a qualified tax professional to ensure that you are maximizing your deductions.

Pick the Right Cost Basis Method

Selecting an appropriate cost basis method for crypto transactions can lower your tax liability in the US. The chosen method affects reported capital gains or losses. For long-held, appreciated assets, HIFO may lower taxes compared to FIFO. Frequent traders might benefit from the specific identification method, allowing asset selection for sale based on cost basis. However, the optimal method varies by individual circumstances and transaction history.

Invest in IRAs

Investing in IRAs, including traditional and Roth IRAs, offers tax benefits for cryptocurrency investments, but with certain limitations. Traditional IRA contributions may be tax-deductible, but withdrawals are taxed. Roth IRA contributions are after-tax, with tax-free withdrawals. Crypto gains in IRAs are taxed upon withdrawal, with potential penalties for early access. Not all IRAs permit crypto investments, so it's important to be aware of restrictions and regulations.

Capital Gains Tax (CGT) Allowance

The Capital Gains Tax (CGT) allowance does not apply to cryptocurrency transactions by means. In the US, any profits you make from the sale or exchange of cryptocurrency are generally subject to capital gains taxes, regardless of the amount.

However, if your total taxable income is less than or equal to 44,625$ in 2023 (for single or married filing separately) you will pay no tax. (89,250$ for married filing; 59,750$ for head of household)

Tips on Preparing For The Crypto Tax Period

Here are some tips on preparing for the crypto tax period in the US:

Gather your information

Learn IRS rules on crypto taxes to identify taxable transactions and required forms. Use strategies like tax-loss harvesting and holding crypto for long-term gains. If past tax filings missed crypto transactions, review them and consider amending with a tax professional's help.

Familiarize yourself with the forms

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

  • Form 1040: The primary form for individual annual income tax returns, including income, deductions, and credits.
  • Schedule D: Reports capital gains and losses from asset sales or exchanges, such as cryptocurrencies.
  • Form 8949: Required for reporting multiple capital gains or losses on Schedule D, providing detailed transaction information.
  • 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 cryptocurrency sales and related details.

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

Use crypto tax software to calculate your gains and losses

There are various advantages to using a crypto tax program to figure out your earnings and losses.

reasons to use crypto tax software
The Benefits of Crypto Tax Software Like Blockpit

Which Records Do You Need to Keep?

When it comes to filing crypto taxes in the US, it is important to keep detailed records of all of your crypto transactions.

tax records to keep for the IRS
Records To Keep for the IRS

You should also keep records of your holdings and any transfers or transactions between your accounts.

The IRS has a six-year window to examine tax returns, so it is essential to retain these records for at least that long to guarantee you have the data you need in the event of an audit.

Crypto Tax Deadlines in the US

crypto tax deadlines in the US 2023
Tax Deadlines 2023

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

  • April 15: This is the tax filing deadline for most individuals in the US. If you earn income from crypto, you need to report it on your tax return.
  • June 15: This is the tax filing deadline for US citizens and residents living outside of the country.
  • October 15: If you filed for a tax extension, this is the final deadline to submit your tax return.

It is important to note that these deadlines apply to income earned from crypto trading, mining, staking, and other crypto-related activities. Filing and paying your taxes on time is also important to avoid late fees and penalties.

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Table of content
Chapter 4

Automating & Filing Your Tax Report

What you need to know about the IRS, filing your crypto tax report, and using Blockpit.

What Happens If You Don’t Report Your Crypto Gains?

Not reporting crypto gains can lead to severe penalties:

  • IRS Penalties: Failure to report can attract fines up to 75% of the unpaid tax, interest charges, and criminal prosecution.
  • IRS Warning Letters:
    Letter 6173
    : Targets taxpayers with unreported income, demanding compliance actions within 30 days to avoid penalties.
    Letters 6174 & 6174-A
    : Notify individuals of potential underreporting in crypto transactions, urging review and correction of tax filings.
  • Consequences: Neglect can result in civil fines and criminal charges, with penalties based on the failure's extent and unreported income amount. Active IRS and DOJ investigations into deliberate noncompliance could lead to imprisonment and significant fines.

Consulting a tax professional upon receiving any IRS warning is crucial for compliance and avoiding legal issues.

What Happens if You Forget to Report Your Crypto Taxes?

Failing to report crypto taxes in the US can lead to penalties and interest. The IRS may issue a notice for unreported income, with consequences including late payment and failure to file penalties—up to 25% of the tax owed. Significant unreported crypto gains can escalate these charges. Non-compliance may trigger an IRS audit. To avoid penalties, accurately report crypto taxes and seek advice from a tax professional for any uncertainties.

Can the IRS Track Cryptocurrency?

The IRS monitors cryptocurrency transactions through various means. Despite crypto's decentralized nature, the IRS enforces tax compliance, receiving 1099 forms from exchanges like Coinbase. It partners with firms like Chainalysis to track transactions and issues subpoenas to exchanges for customer transaction data. With increased scrutiny and a cryptocurrency question on the 1040 tax form, it's harder for taxpayers to omit their crypto transactions.

Which Crypto Exchanges Report to the IRS?

In the United States, all cryptocurrency exchanges are required to report certain transaction information to the IRS under the Bank Secrecy Act (BSA). This information includes customer names, addresses, social security numbers or tax identification numbers, and transaction details such as amounts and dates.

Some of the larger cryptocurrency exchanges that have publicly stated that they will provide information to the IRS include Coinbase, Gemini, Kraken, and Bitstamp.

How to Report Crypto Taxes With the IRS?

To report your crypto taxes with the IRS, you must include your capital gains or losses on your tax return. Here is a general overview of how to report your crypto taxes:

  1. Complete Form 8949: Use Form 8949 to report your capital gains or losses from your crypto transactions.
  2. Transfer information to Schedule D: Transfer the information from Form 8949 to Schedule D.
  3. Complete Form 1040: Use Form 1040 to report your overall income, including capital gains or losses from crypto transactions.
  4. File your tax return: File your tax return by the tax deadline (usually April 15th, unless it falls on a weekend or holiday), or request an extension if needed.

It is essential to keep accurate records of your crypto transactions, including the purchase price, date of purchase, sale price, and date of sale.

Blockpit: Use Crypto Tax Software to Generate Fool-Proof Crypto Tax Reports

Blockpit, a crypto tax software, simplifies generating tax reports by importing transaction data from exchanges and wallets, automatically calculating capital gains or losses. It offers real-time tax calculation and shows unrealized gains or losses. Using Blockpit can streamline crypto tax reporting, minimizing errors and audit risks.

Using Blockpit couldn’t be easier:

1. Import your transactions

Blockpit offers direct integrations for crypto exchanges, wallets and DeFi protocols. Automatically import your transactions via API integration, wallet address synchronization, or by manually uploading an Excel file.

Discover all crypto integrations

2. Validate & Optimize

Blockpit offers smart insights and suggestions to optimize your tax report, fix issues, add missing values and to validate your transactions.

3. Generate your tax report

Generate your compliant tax report with the click of a button. Our tax engine calculates your tax report on the basis of the US tax framework.

Blockpit US Tax Report Overview
Blockpit US Tax Report Overview
Blockpit US Tax Report Form 1040
Blockpit US Tax Report Form 1040
Blockpit US Tax Report Capital Gains and Losses Summary
Blockpit US Tax Report Capital Gains and Losses Summary

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File Your Crypto Taxes With TaxAct

TaxAct is a tax preparation software that offers a dedicated crypto tax importer to help individuals and businesses file their crypto taxes. The platform provides a simple process to import your cryptocurrency transaction data from various exchanges and wallets, calculate your gains and losses, and generate accurate tax forms.

File Your Crypto Taxes With TurboTax

TurboTax, known for its user-friendly tax software, provides a crypto tax solution that may not add much value if you've already used Blockpit for your crypto tax calculations. Nevertheless, it's beneficial for those preferring to file taxes independently, offering a step-by-step guide, integration with various tax forms, audit protection, and access to expert support. TurboTax is suitable for users with mixed income sources or those seeking additional reassurance and assistance in tax filing.

Can I Use Crypto Tax Software in Combination With TurboTax

Yes, you can use crypto tax software in combination with TurboTax. When you use a crypto tax software like Blockpit, it can help you track your transactions, calculate your gains and losses, and generate tax reports. Once you have generated these reports, you can import the data into TurboTax to make the tax filing process simpler and more efficient. To import your crypto tax data into TurboTax, you can typically use the “TurboTax Online” or “TurboTax Desktop” version.

File Your Crypto Taxes With Paper Forms

In the US, while you can file crypto taxes via paper forms such as Form 8949, Schedule D, and Form 1040, it's not recommended due to the potential for errors and time consumption. The IRS encourages electronic filing for faster and more accurate submissions. These forms require manual calculation of gains and losses and are accessible on the IRS website or local offices.

Table of content

FAQ

What is a cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses cryptography for security. It is decentralized and operates independently of a central bank. Cryptocurrencies are based on blockchain technology, a distributed ledger that records and verifies transactions. Some popular cryptocurrencies include Bitcoin, Ethereum, Ripple, and Cardano.

What is a capital gain?

A capital gain refers to the profit realized when an asset, such as stocks, real estate, or cryptocurrency, is sold for a higher price than its purchase price. It is calculated as the difference between the selling price and the asset’s purchase price.

What is a capital loss?

A capital loss is a decrease in the value of an investment or asset compared to its purchase price. It occurs when the asset’s selling price is lower than the purchase price. Capital losses can be used to offset capital gains for tax purposes.

Is trading one cryptocurrency for another a taxable event?

Yes, trading one cryptocurrency for another is generally considered a taxable event in the US. This is because the IRS treats cryptocurrency as property, and exchanging one property for another is taxable.

Is crypto taxed like stocks?

Cryptocurrencies are treated as property for tax purposes rather than stocks or currency in the US. This means that capital gains and losses from the sale or exchange of cryptocurrencies are subject to taxation like other types of property.

How do I pay taxes on crypto?

In the US, you pay taxes on your crypto by reporting your capital gains or losses on your tax return. You will report your capital gains or losses on Form 8949 and Schedule D of your tax return.

How are NFTs taxed?

NFTs (non-fungible tokens) are a relatively new asset class, and the tax treatment of NFTs is still evolving. Generally, NFTs are treated as property for tax purposes, meaning that buying, selling, or trading NFTs can result in capital gains or losses. If you sell an NFT for more than you paid, you will owe capital gains tax on the profit. If you held the NFT for more than a year, the long-term capital gains tax rate applies, which is lower than the short-term capital gains tax rate.

Sources & References

IRS, "Frequently Asked Questions on Virtual Currency Transactions" https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions, Accessed on 10/19/2023

IRS, "Topic No. 409, Capital Gains and Losses", https://www.irs.gov/taxtopics/tc409, Accessed on 10/19/2023

The White House, "Fact Sheet: The Bipartisan Infrastructure Deal", https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/06/fact-sheet-the-bipartisan-infrastructure-deal/, Accessed on 10/19/2023

Update Log

02/14/2024: Update 2024 / Updated tax forms / Updated structure

10/19/2023: Updated tax forms

10/13/2023: Updated tax guide structure

Disclaimer: The information provided in this article is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations, we recommend contacting a certified legal advisor in the respective country.