2024 Crypto Tax Guide for U.S.

Every year we get many folks coming to us asking the same questions about crypto taxes in the U.S. Here is a breakdown of the most common questions:

Which Crypto Transactions Are Taxable?

• You have to report most crypto transactions as taxable events. This includes more than just cashing out. Using crypto to purchase goods or services, or even trading one cryptocurrency for another, is taxable.
  • The following crypto transactions are subject to capital gains tax:
    • Cashing out (selling crypto for USD/fiat)
    • Converting or swapping crypto
    • Paying for goods and services with crypto
    • Trading crypto for NFTs or vice versa
  • The following cryptocurrency transactions are taxable as ordinary income:
    • Mining or staking
    • Receiving an airdrop
    • Getting paid in crypto
    • Earning interest, yield, or other types of rewards

Do you pay tax when you cash out?

• Yes, cashing out your crypto—selling it for USD or any other type of government-issued currency—is taxable. This creates a capital gain.

Is converting taxable?

• Swapping one type of crypto for another (for example, trading ETH for ADA) is a taxable event. The IRS views this as selling the first coin for USD, then using USD to buy the second coin.

Is paying with crypto taxable?

• Yes, using crypto to pay for something is a taxable event that creates a capital gain. This is true whether you’re buying physical goods, services, NFTs, or anything else.

Taxes on mining?

• Crypto mining is taxable as ordinary income. Typically, the IRS considers mining a business, which means that you can deduct business expenses.

Staking taxes?

• Yes, there are taxes on staking rewards. Unlike mining, the IRS doesn’t typically see staking as a business that allows tax write offs. Instead, they typically consider staking rewards as miscellaneous income.

Taxes if you get paid in crypto?

• When you receive payment in cryptocurrency, that’s taxable as ordinary income. This is true whether you’re accepting payment for original NFTs, physical goods, services, or anything else. It also applies if your employer pays your salary or bonus in crypto.

Are there taxes on airdrops?

• Airdrops are taxable as ordinary income. The IRS guidance on airdrops only mentions cryptocurrencies (such as BTC and ETH). However, the conservative approach is to treat airdrops of NFTs or utility tokens the same way.

How about USDC?

• The IRS treats USDC and other stablecoins just like other cryptocurrencies for tax purposes. Trading them or converting them could trigger capital gains tax obligations.

What’s not taxable? There are some crypto transactions that are tax-free, but you may still need to report them. Non-taxable crypto transactions include:

• Purchasing crypto with USD/fiat
• Transferring crypto between your own wallets and exchanges
• Holding crypto, even if the value increases
• Giving or receiving crypto as a gift (within limits)
• Donating crypto to a qualified nonprofit

Is Buying Crypto a Taxable Event?

• Buying crypto with USD or another government-issued currency is not taxable. No need to report on your tax return if your only activity was buying.

Is Transferring Crypto a Taxable Event?

• Transferring crypto between your own wallets or accounts is typically not taxable. It’s like moving assets from one pocket to another. Each movement should be tracked to find the crypto cost basis. Be wary of crypto tax software mislabeling self-transfers as taxable transactions.

If My Crypto Has Gone Up in Value, Do I Have to Pay Tax?

• Holding onto crypto that has increased in value is an unrealized gain, which is not taxable unless you have trader tax status.Taxes are due once you sell, trade, swap, or otherwise dispose of the crypto.

Is Sending Crypto Taxable?

• Sending crypto as a gift is typically not taxable unless annual or lifetime limits are exceeded.A crypto gift letter may be required, or a gift tax return filed.Sending crypto from one wallet to another is not taxable. Sending crypto as payment for goods or services is taxable.

Is Donating Crypto Taxable?

• Donating crypto to a qualified nonprofit does not trigger capital gains tax. The donation may be tax deductible, serving as a strategy to avoid crypto capital gains tax.

Do I Have to Report Crypto If I Lost Money?

• Yes, the IRS requires that you report crypto losses along with all other crypto activity. Believe it or not, this can save you a lot of IRS headaches. Cryptocurrency losses can offset gains and reduce your overall tax liability. It’s crucial to report both gains and losses accurately to ensure you’re not overpaying taxes.

Do Crypto Exchanges Report to the IRS?

• Yes, many crypto exchanges report certain information to the IRS. When the IRS receives information about your crypto from an exchange, it’s critical that you report everything correctly. Most exchanges currently use Form 1099-MISC or Form 1099-B. When it comes to crypto, these forms are often not sufficient for filing your taxes accurately.
• Popular crypto exchanges that report to the IRS include: Coinbase, Crypto.com, Binance US, Kraken, Gemini, Bitstamp, Robinhood, and CashApp.

What Happens If I Don’t Report Crypto on My Taxes?

• If you fail to report your crypto transactions accurately, you can face serious consequences. These include cryptocurrency tax audits, severe financial penalties, and even criminal tax investigations. The IRS has been actively targeting crypto tax evasion for years. Soon, the IRS will start collecting much more information on Form 1099-DA. Report your activities correctly to avoid problems.

Disclaimer: The information provided pertains to the United States. Information contained in this post and in the comments is intended for general informational and educational purposes and does not constitute legal advice. Reading this post, reading the comments, receiving a reply to your comment, or sending a direct message to this account does not create an attorney-client relationship. Contact an attorney for legal advice regarding your specific situation.