Summary: This blog provides a comprehensive guide to cryptocurrency taxation for 2024. It covers IRS definitions, taxable and non-taxable transactions, tax calculation examples, changes from 2023, tax rates, and filing deadlines. Additionally, it highlights the benefits of using crypto tax calculator software.
Introduction
Cryptocurrency has revolutionized how we think about money and investments, but when it comes to taxes, things can get tricky fast. For many, navigating the murky waters of crypto taxation feels like a daunting task, until now. Whether you’re a crypto veteran or a complete beginner, it’s essential to know how the IRS classifies and taxes your digital assets. Let’s cut through the jargon, decode the latest tax rules for 2024, and show you how staying compliant can actually help you keep more of your hard-earned gains. Ready? Let’s get started!
Key Takeaways
- IRS defines cryptocurrency as property for tax purposes.
- Selling, trading, and using crypto for purchases are taxable.
- Annual tax filing deadline for crypto is April 15th.
- Both airdrops and hard forks are taxable.
- Capital gains tax rates unchanged for 2024.
Definition of Cryptocurrency Taxes as per IRS in the US
The Internal Revenue Service (IRS) treats cryptocurrency as property for tax purposes. This means that general tax principles applicable to property transactions also apply to cryptocurrency transactions. Key terminologies include:
- Cost Basis: The original value of the cryptocurrency when acquired.
- Capital Gains: The profit made from selling the cryptocurrency for more than the cost basis.
- Capital Loss: A capital loss, occurs when you sell or dispose of a capital asset for less than its adjusted basis (Cost Basis).
- Fair Market Value: The price at which the cryptocurrency would change hands between a willing buyer and seller.
Taxable vs. Non-Taxable Crypto Transactions
Taxable Transactions under Capital Gain:
- Selling Crypto for Fiat: Any sale of cryptocurrency for traditional currency (e.g., USD) is taxable.
- Trading One Crypto for Another: Exchanging one type of cryptocurrency for another is considered a taxable event.
- Using Crypto for Purchases of Other Goods or Services: Buying goods or services with cryptocurrency is taxable as it involves the disposition of property.
Taxable Transactions under Income Tax:
- Mining: Income received from mining is taxable. The fair market value of the mined cryptocurrency on the day it is received is considered taxable income. This income is typically subject to self-employment tax as well.
- Airdrop & Hard Forks: Both airdrops and hard forks are considered taxable events. The fair market value of the new tokens received is counted as ordinary income at the time they are received and should be reported in the taxpayer’s income for that year.
- Miscellaneous Rewards & Staking Rewards: Both miscellaneous rewards and staking rewards are treated as taxable income. The fair market value of the cryptocurrency received as a reward should be included in the taxpayer’s income for the year it is received.
Non-Taxable Transactions:
- Buying Crypto with Fiat: Simply purchasing cryptocurrency with traditional currency is not a taxable event.
- Transferring Crypto Between Personal Wallets: Moving cryptocurrency between your own wallets does not trigger a tax event.
- Gift Sent/Received: The giver can exclude gifts up to a certain amount from being taxable. For 2024, this amount is $18,000 per recipient. If the value of the gift exceeds the annual exclusion limit, the excess amount may be subject to gift tax. However, the giver can use their lifetime gift tax exemption to offset this tax. On the contrary, the recipient of the gift does not have to pay income tax on the received cryptocurrency. However, if they sell the gifted cryptocurrency, they must report capital gains based on the original cost basis and holding period from the giver.
- Donation: Donations of cryptocurrency to a qualified charitable organization can be tax-deductible. The donor can deduct the fair market value of the donated cryptocurrency at the time of donation, provided they have held the cryptocurrency for more than one year. Qualified charitable organizations generally do not pay tax on donations received, including cryptocurrency donations.
The source for the taxability information referenced in this guide is from the IRS document, which can be accessed at IRS Publication i1040gi.
Example of Crypto Tax Calculation
Let’s illustrate how to calculate taxes on a hypothetical cryptocurrency transaction.
1. Scenario: You purchased 1 Bitcoin (BTC) for $10,000 in January 2023 and sold it for $15,000 in January 2024.
2. Cost Basis: $10,000
3. Sale Price: $15,000
4. Capital Gain: $15,000 – $10,000 = $5,000
If the holding period is more than one year, the gain is considered a long-term capital gain, subject to a lower tax rate compared to short-term capital gains.
Major Changes in Crypto Taxes Compared to 2023
The year 2024 has brought several changes in cryptocurrency taxation:
- Enhanced Reporting Requirements: Starting January 1, 2024, the IRS requires anyone who receives at least $10,000 in cryptocurrency transactions to report the details to the IRS. This includes providing the name, address, and Social Security number of the sender, along with the transaction amount and nature. Non-compliance could lead to severe penalties.
- Standard Deductions: In 2024, the basic standard deduction is set at $29,200 for married couples filing jointly, $14,600 for single taxpayers and married individuals filing separately, and $21,900 for heads of household. Comparatively, the 2023 standard deduction was $27,700 for joint filers, $13,850 for individuals, and $20,800 for heads of household.
- Updated Tax Rates: Adjustments in tax rates for both short-term and long-term capital gains. As Per IRS, for tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).
- Increased Penalties for Non-Compliance: Stricter penalties for failing to report cryptocurrency income accurately.
- Itemized Deductions: The rules for claiming itemized deductions remain unchanged in 2024. Similar to the years 2023, 2022, 2021, 2020, 2019, and 2018, there is no change on itemized deductions rules, as the Tax Cuts and Jobs Act suspended to claim deductions through 2025.
- Updated Exclusion Limits: For the calendar year 2024, the annual gift tax exclusion has increased to $18,000, up from $17,000 in 2023.
- Lifetime Estate Tax Exclusion Limit: For the 2024 calendar year, the Lifetime Estate Tax Exclusion has risen to $13.61 million, up from $12.92 million. This means you can gift up to this amount over your lifetime without triggering federal Gift Tax. Annually, you can give up to $17,000 to each individual without affecting your lifetime exclusion. Any amount gifted beyond $17,000 in a single year will be deducted from your lifetime limit of $13.61 million.
- Staking rules as per guidelines issued by the IRS in the year 2023: According to the IRS guidelines in 2023 (RR-23-14), if a taxpayer using the cash method stakes cryptocurrency in a proof-of-stake blockchain and earns rewards, the fair market value (FMV) of those rewards is included in their gross income. The FMV is calculated at the time the taxpayer gains control over the staking rewards. This applies even if the staking is done via a cryptocurrency exchange, ensuring that the rewards are taxed once the taxpayer has dominion over them. This type of earnings are taxable as ordinary income tax.
- Hard forks and Airdrops rules as per guidelines issues by the IRS in the year 2023: According to the IRS guidelines issued in 2023 (RR-19-24), a hard fork alone does not generate taxable income unless new cryptocurrency is received. However, if a hard fork is followed by an airdrop and the taxpayer receives new cryptocurrency, the fair market value of the new coins or tokens at the time of receipt must be included in their gross income. This applies when the taxpayer has control over the airdropped cryptocurrency, meaning they can sell, exchange, or otherwise dispose of it immediately. This type of earnings are taxable as ordinary income tax.
These changes highlight the importance of staying updated with the latest tax laws to avoid potential pitfalls.
Tax Rates for Cryptocurrency in the US
Cryptocurrency tax rates vary based on the holding period and type of income:
- Short-Term Capital Gains: Taxed as ordinary income, with rates ranging from 10% to 37%, depending on your tax bracket.
- Long-Term Capital Gains: Preferential rates of 0%, 15%, or 20%, depending on your overall taxable income.
- Other crypto incomes: Includes mining income, staking rewards, and airdrops, which are taxed as ordinary income.
Short-term tax rates if you sell crypto in 2024 (taxes due in 2025)
| Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 10% | $0 to $11,600 | $0 to $23,200 | $0 to $11,600 | $0 to $16,550 |
| 12% | $11,601 to $47,150 | $23,201 to $94,300 | $11,601 to $47,150 | $16,551 to $63,100 |
| 22% | $47,151 to $100,525 | $94,301 to $201,050 | $47,151 to $100,525 | $63,101 to $100,500 |
| 24% | $100,526 to $191,950 | $201,051 to $383,900 | $100,526 to $191,950 | $100,501 to $191,950 |
| 32% | $191,951 to $243,725 | $383,901 to $487,450 | $191,951 to $243,725 | $191,951 to $243,700 |
| 35% | $243,726 to $609,350 | $487,451 to $731,200 | $243,726 to $365,600 | $243,701 to $609,350 |
| 37% | $609,351 or more | $731,201 or more | $365,601 or more | $609,351 or more |
Long-term rates if you sell crypto in 2024 (taxes due in April 2025)
| Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 0% | $0 to $47,025 | $0 to $94,050 | $0 to $47,025 | $0 to $63,000 |
| 15% | $47,026 to $518,900 | $94,051 to $583,750 | $47,026 to $291,850 | $63,001 to $551,350 |
| 20% | $518,901 or more | $583,751 or more | $291,851 or more | $551,351 or more |
Tax Filing Deadlines for Cryptocurrency
In the US, the deadline for filing cryptocurrency taxes typically aligns with the general tax filing deadline, which is April 15th each year. And if you need more time, you can file for an extension using Form 4868, which extends the filing deadline by 6 months i.e. 15th October. However, the extension applies only to the filing of your tax return, not the payment of any taxes owed. It’s crucial to file on time to avoid late penalties and interest charges.
How can CRPTM Help?
CRPTM, a tax calculator software can be a game-changer in managing your cryptocurrency taxes. It automates the calculation of gains and losses, ensuring accuracy and saving you time. With features like real-time tax reports and compliance checks, such software helps you stay on top of your tax obligations effortlessly.
Conclusion
Staying informed about cryptocurrency taxation is essential for every crypto investor and trader. By understanding the rules, calculating taxes accurately, and utilizing tools like tax calculator software, you can navigate the complexities of crypto taxes with confidence. Make sure to stay updated with the latest regulations to ensure compliance and optimize your tax strategy.
Disclaimer: The information presented on this website is intended for general informational purposes only and should not be interpreted as professional advice from CRPTM. CRPTM does not offer financial advice. We strongly recommend seeking independent legal, financial, tax, or other professional advice to determine how the information provided on this website applies to your specific circumstances. CRPTM assumes no liability for any loss incurred, whether due to negligence or otherwise, resulting from the use of or reliance on the information contained herein.
