Updated: March 10, 2025
The IRS classifies cryptocurrency as property, making it subject to capital gains and income tax. This guide covers key tax requirements for the 2024 tax year (filed in 2025).
1. Taxable Events
You must report taxes when you:
- Sell cryptocurrency for fiat (e.g., USD)
- Trade one cryptocurrency for another (e.g., BTC for ETH)
- Spend cryptocurrency on goods or services
- Earn cryptocurrency through mining, staking, airdrops, or as payment
Non-Taxable Events
- Buying cryptocurrency with fiat currency and holding
- Transferring between personal wallets
- Gifting cryptocurrency (up to $18,000 per recipient in 2024)
- Donating to a 501(c)(3) charity (deductible at fair market value if held over one year)
2. Tax Rates
Capital Gains Tax
- Short-Term (≤1 year): 10%–37% (ordinary income tax rates)
- Long-Term (>1 year):
- 0%: Up to $47,025 (single) / $94,050 (joint)
- 15%: $47,026–$518,900 (single) / $94,051–$583,750 (joint)
- 20%: Above those thresholds
- Net Investment Income Tax (NIIT): Additional 3.8% tax if modified adjusted gross income exceeds $200,000 (single) / $250,000 (joint)
Ordinary Income Tax
- Applies to crypto earned through mining, staking, airdrops, or compensation
- Taxed at standard income tax rates (10%–37%)
3. Reporting Requirements
Required Forms
- Form 1040: Digital assets question (must answer “Yes” or “No”)
- Form 8949 & Schedule D: Report capital gains/losses
- Schedule C: Report mining or self-employed crypto income
- Schedule 1: Report staking rewards and airdrops as “other income”
- Form 8300: Mandatory reporting for transactions over $10,000 (must be filed within 15 days)
Cost Basis & Record-Keeping
- Track purchase price and fair market value at disposal
- Methods: FIFO (default), LIFO, or Specific Identification
- Records: Maintain dates, values, wallet addresses, and exchange data
- Tools: CoinLedger can automate this process
4. Key Updates for 2024
- Increased IRS Enforcement: Exchanges now report user data; audits are increasing
- New Form 8300 Rule: Reporting required for $10,000+ transactions
- Form 1099-DA: Being prepared in 2024, effective 2025
- Wash Sale Rule Exemption: Still does not apply to crypto—investors can sell at a loss and immediately repurchase to reduce taxable gains
5. Common Scenarios
- Trading Crypto: Taxable based on fair market value when swapped
- Staking Rewards: Report as income at FMV when received; capital gains apply when later sold
- Lost or Stolen Crypto: Deductible only in federally declared disasters
- NFTs: Sales incur capital gains tax; creator royalties are taxed as ordinary income
6. Deadlines & Penalties
- Tax Filing Deadline: April 15, 2025 (October 15 with an extension)
- Failure to Report: 20% accuracy-related penalty plus interest
- Fraudulent Omission: Up to 75% of unpaid tax
- Late Filing Penalty: 5% per month (max 25%)
7. State Taxes
- Most states follow federal tax rules
- No state income tax: Texas, Wyoming, Florida, and others
- High-tax states: California, New York, and others impose additional obligations
8. Tax Optimization Strategies
- Hold >1 Year: Qualify for lower long-term capital gains rates (0-20%)
- Harvest Losses: Offset gains by selling at a loss and rebuying (wash sale rule doesn’t apply)
- Time Income: Consider earning in lower-income tax years
- Gift/Donate Crypto: Avoid capital gains tax (gift limit: $18,000 per recipient)
- Relocate to Tax-Friendly States: Consider selling in no-income-tax states
9. Resources
- IRS Guidance: Notice 2014-21, Revenue Ruling 2019-24, and IRS FAQs
- Crypto Tax Software: CoinLedger
- Professional Help: Find a Crypto Tax CPA through CoinLedger’s directory or AICPA
Conclusion
While crypto taxes can be complex, proper tracking, tax-loss harvesting, and automation tools make compliance easier. Start early, maintain good records, and consider professional guidance for your specific situation.
Disclaimer: This guide is for informational purposes only and should not be considered tax advice. Consult a tax professional for personalized guidance.