Tag: crypto tax

Posts Tagged ‘crypto tax’

2024 Crypto Tax

Posted by admin on April 4, 2024
Last modified: April 4, 2024

The specific 2024 crypto tax rate you pay on cryptocurrency transactions is influenced by how long you hold the asset and your total income. Suppose you are a taxpayer in the United States. In that case, short-term capital gains arising from cryptocurrency held for less than a year are taxed at regular income tax rates varying from 10% to 37%, depending on the total income level you’ve earned and tax bracket you are subject to. Conversely, long-term capital gains from cryptocurrency profits held for over a year are taxed at rates between 0 and 20%.

When engaging in mining, staking, lending, or making payments for goods and services in the crypto world, these activities are categorized as regular income. They are subject to taxation based on your crypto tax bracket. The crypto tax rate you are liable for will be determined by your total income, falling within 10-37% range.

Regarding cryptocurrencies, the IRS categorizes them as property and enforces corresponding tax regulations. US taxpayers are subject to a crypto tax rate aligned with either short- or long-term capital gains, similar to stocks, or standard income tax rates based on the method of acquisition of the cryptocurrency.

2024 crypto tax

How Does US Taxes on Crypto Assets?

How does crypto gets taxed in the US? Understanding the tax implications of cryptocurrency is essential for users to effectively navigate the complexities of their financial strategies. In the United States, the IRS categorizes crypto earnings as either income or capital gains, depending on the specific taxable event involved in generating the profits.

No matter the particular cryptocurrency involved—Bitcoin, Ethereum, or alternative coins—the IRS enforces equivalent tax regulations on all cryptocurrency transactions.

Tax Form 8300 for Crypto Transactions more than $10,000 for 2024 Crypto Tax

Commencing on January 16, 2024, the IRS has offered clear guidance by indicating that enterprises involved in particular online transactions only need to utilize Tax Form 8300 once additional regulations are released.

In response to an upcoming tax reporting law that took effect on January 1, 2024, there were growing apprehensions within the industry. The new legislation required individuals engaged in a trade or business to report transactions exceeding $10,000 using Form 8300.

In a recent development, the Infrastructure Investment and Jobs Act has introduced a requirement for individuals who receive $10,000 or more in cryptocurrency during their business activities to report such transactions to the IRS, despite the familiar nature of the reporting form.

When it comes to crypto transactions, applying this general guideline can be difficult because of the challenges associated with collecting essential information, predominantly caused by the pseudonymous characteristics of cryptocurrency transactions.

In light of unclear guidance from the IRS concerning the legislation, businesses dealing with crypto transactions over $10,000 are temporarily exempt from filing Form 8300 until the uncertainties are addressed. As soon as the IRS releases more information, this guide will be revised promptly to reflect the updated guidelines.

How to File my 2024 Crypto Tax

In accordance with IRS regulations, individuals are obligated to declare their cryptocurrency activities. This includes any buying, selling, exchanging, or discarding of digital assets, all of which are considered taxable capital gains or losses. Additionally, earnings from crypto mining, staking, and yield farming are subject to income tax.

First, Track your profits and losses

In the initial phase, it is essential to assess gains and losses when engaging in cryptocurrency transactions such as selling or trading. Each of these actions initiates taxable events. The first step is to determine the disparity between the asset value at the time of disposal and its cost basis in order to calculate the gains or losses incurred.

Second, Work Through the Tax Form 8949

In the second phase, it is necessary to fill out Form 8949 from the Internal Revenue Service. Form 8949 should be utilized for reporting any profits or losses from cryptocurrency transactions. This particular form is intended for documenting all crypto exchanges made throughout the year.

Third, Prepare Your Schedule D

Next, you will need to connect Form 8949 with Schedule D. Form 8949 should be attached to your Form 1040 Schedule D, where you will consolidate information on capital gains and losses. Make sure to categorize your short-term and long-term gains and losses separately.

Finally, Gather Income and Earnings from Crypto

Upon reaching final step, it’s crucial to account for earnings from cryptocurrency activities such as mining and staking. This crypto income should be classified as ordinary income and reported on Form 1040 Schedule 1 under the section “Additional Income and Adjustments to Income”.

How Does the IRS Audits My 2024 Crypto Tax

The IRS monitors cryptocurrency transactions through exchanges, third-party reports, and blockchain analysis. Let’s take a closer look at the methods employed by the IRS to monitor crypto transactions and ensure regulatory compliance.

When it comes to reporting transactions to the IRS, third-party platforms and exchanges play a crucial role by providing users with transaction data. In addition, the IRS employs blockchain analysis to track public cryptocurrency transactions through the expertise of blockchain specialists.

When it comes to investigating cryptocurrency platforms, the IRS has a tool known as John Doe Summons. This legal mechanism enables the IRS to request information from platforms regarding users who meet certain criteria, such as engaging in a particular volume or value of transactions.

In the pursuit of uncovering tax evasion in crypto transactions, the IRS utilizes subpoenas to obtain user data from various platforms. These legal tools are essential for the IRS to collect relevant information and identify individuals involved in dubious financial activities. Notable exchanges such as Coinbase, Circle, Kraken, and Bitstamp have been recipients of these crucial subpoenas that aid IRS investigations.

Ensuring full compliance with tax regulations entails operating under the assumption that the IRS closely monitors all your cryptocurrency transactions. It is crucial to strategize and prepare for this level of oversight.

2024 Tax on Digital Assets and Digital Transactions using Venmo and Crypto

Posted by admin on March 21, 2024
Last modified: March 22, 2024

Another year has come around, bringing with it the annual task of navigating the intricacies of the tax code. Once again, we are faced with the complexity of 2024 tax rules as we explore benefits such as tax breaks for electric vehicles, workarounds for SALT deductions, incentives for retirees, and a fresh filing system for eligible taxpayers.

In the current transition period, while not as chaotic as during the pandemic, numerous new regulations are coming into force, with the possibility of certain adjustments occurring during the middle of the season.

Caution is advised to avoid financial repercussions: The interest rates on outstanding taxes and fines for tardiness have recently escalated to 8 percent from previous levels, emphasizing the importance of timely compliance.

2024 Tax Updates from IRS to mitigate the significant inflation?

In response to soaring inflation, the IRS has implemented an increase of approximately 7 percent to the outer boundaries of the federal tax brackets. This adjustment ensures that individuals who receive salary hikes are not penalized by having more of their income subject to higher tax rates, even if their earnings are merely keeping up with the rising cost of living.

In the tax year 2023, there are adjustments to the tax brackets. Single taxpayers will enter the 24 percent tax bracket once their income exceeds $95,375, while married joint filers will reach this bracket at $190,751. Other tax brackets also see alterations corresponding to these changes. Notably, the standard deduction for single filers has increased to $13,850, an increase of $900.

In the year 2023, the maximum allowable contribution to 401(k) plans has increased to $22,500, compared to $20,500 in the previous year of 2022. Eligible individuals need to note that they can maximize their savings in their IRA for the year 2023 until they submit their tax returns.

2024 tax

Is IRS tracking digital payments with Venmo for 2024 tax?

Before the time comes, individuals such as independent contractors, freelancers, small business owners, and those juggling side hustles must diligently monitor and disclose their income to the IRS. Once they surpass the $400 threshold.

In order to encourage adherence, various online platforms and payment processors such as Venmo, PayPal, eBay, and Airbnb had plans to enhance the monitoring and reporting of sales transactions in the upcoming year. This increased scrutiny would involve the filing of the IRS. Form 1099-K, which would be submitted to both the taxpayer and the IRS.

The IRS has decided to delay the requirement for individuals earning income from online payment processors or marketplaces to receive tax forms for payments over $600 for the second year in a row.

In preparation for the upcoming tax season, it is important to remember that the familiar regulations remain unchanged. Individuals engaged in selling goods or services must provide 1099-K forms once their transactions reach over 200 and the total payments exceed $20,000 annually.

In preparation for the upcoming tax year 2024, the IRS has outlined a gradual reduction of the threshold for reporting payments. Initially set at $5,000 in total annual payments with no minimum transaction requirement, the threshold is expected to eventually settle at a permanent level of $600. Despite these adjustments, individuals may continue to receive forms for payments exceeding the lower thresholds.

In light of the complexities that can arise from distributing an influx of new forms to individuals who may not anticipate them or have any outstanding tax liabilities, the IRS has announced a need for additional time to address potential issues. Efforts are being made to streamline the process and verify that Form 1099-Ks are dispatched only to the appropriate recipients.

I’ve Traded Crypto During 2023. How do I report Crypto for Tax Return?

To ensure compliance with tax regulations, individuals must disclose capital gains and losses, alongside interest and dividend earnings, from the sale of stocks, bonds, and investments on their tax returns. In order to facilitate this process, brokerage firms are obligated to furnish tax documents like the 1099-B and 1099-DIV to monitor these financial transactions, which are subsequently reported to the Internal Revenue Service (IRS).

Changes may be coming for brokerage firms regarding the reporting of cryptocurrency and digital asset transactions. A proposed rule set to take effect in 2025 would mandate the submission of a new documentation, termed the 1099-DA, specifically for digital assets. Until now, such transactions have not been subject to this reporting requirement.

However, taxpayers must still fulfill their obligations for the upcoming tax year of 2023 and beyond.

No matter if an individual receives a tax form or not, they bear the duty of disclosing all their earnings. Additional guidance on this process can be located in the 1040 instructions, along with the resources provided by the Taxpayer Advocate Service and IRS online platforms.

When dealing with cryptocurrency transactions made within a conventional investment vehicle such as a Bitcoin ETF, the trades are recorded and monitored through the familiar 1099-B system, similar to how transactions involving exchange-traded funds or stocks are handled.

Types of Crypto Taxes in 2024

Posted by admin on March 21, 2024
Last modified: March 22, 2024

Taxable Crypto Transactions

Exploring the various crypto transactions and crypto taxes consequences is essential for individuals navigating the world of cryptocurrency. This analysis centers on the tax implications of crypto activities in the United States as outlined by the IRS. Our comprehensive resources on international crypto taxes offer valuable insights to global taxpayers in this evolving landscape of digital assets.

Find your PriorTax dedicated Tax Professional to walk you through your crypto tax filing from start to finish to file your taxes and maximize your tax refund accurately.

Crypto Tax From Crypto Losses

In taxation, it is important to recognize that losses incurred in cryptocurrency investments can serve as a valuable means to counterbalance the taxes applied to profits derived from the sale of various capital assets. For individuals with a tax filing status of single or married filing jointly, the losses can be used to offset up to $3,000 of income.

Individuals have the opportunity to lower their tax burden by accounting for cryptocurrency losses on their tax returns. This strategy allows them to lessen their overall tax liability by decreasing their taxable income through the inclusion of losses from crypto investments.

Crypto Taxes on Lost or Stolen Crypto

Unfortunately, when you find yourself without lost or stolen cryptocurrency, there is no specific process for claiming losses related to theft. The IRS clarified 2018 that deductions for losses are only permitted in cases of federally declared disasters, using Form 4684 (Casualties and Thefts).

crypto taxes 2024

Crypto Taxes on your income

US taxpayers must adhere to tax regulations when it comes to dealing with cryptocurrencies. Income generated from certain crypto-related activities is subject to taxation at the prevailing rates of 10-37%.

  • Cryptocurrency mining
  • The sum from Crypto Staking
  • Receiving Cryptocurrency from selling goods and/or services
  • Crypto taxes from selling crypto and trading crypto

The IRS considers the following crypto transaction as taxable events:

  • Trading one crypto for another crypto (e.g., BTC for ETH)
  • Using crypto for buying goods or services (e.g., BTC for a Tesla)
  • Exchanging crypto for fiat currency (e.g., BTC for USD)
  • Other form of selling or disposal of crypto

In the eyes of the Internal Revenue Service (IRS), cryptocurrency is categorized as property and is subject to taxation based on this classification. US taxpayers are required to pay taxes on their cryptocurrency holdings at rates equivalent to those applied to short- or long-term capital gains from stock investments or standard income tax rates, depending on the method through which the cryptocurrency was obtained.

When it comes to cryptocurrency investments in the United States, the tax implications differ based on the duration of asset holding. Short-term capital gains on crypto assets held for under a year are taxed at variable rates from 10% to 37%, depending on the individual’s income and tax bracket. Long-term capital gains held more than a year on profits from crypto have a 0-20% rate.

Crypto Taxes for Moving Crypto Between Digital Wallets

When transferring cryptocurrency from one wallet to another, there is no tax implication as long as the transfer involves only moving the tokens without engaging in trades with other cryptocurrencies or converting them into regular fiat currencies at the time of transfer.

Crypto Taxes When Buying Cryptocurrency with Stablecoins

In the realm of stablecoin fluctuations, the slight changes in value typically do not significantly affect the overall tax responsibility. However, it remains crucial to include details of stablecoin activities in your tax filings. Similar to trading fiat currency, engaging in transactions involving stablecoins within the cryptocurrency realm carries comparable tax considerations.

Crypto Tax from Crypto Staking

When it comes to crypto staking taxes, it is important to consider both income and capital gains. The proper procedure includes declaring the staking rewards’ fair market value at the time of receipt and calculating capital gains or losses when the staked assets are eventually disposed of.

Crypto Taxes for Adding/Removing Liquidity from DeFi Protocols

Engaging in a DeFi liquidity pool may have tax implications that should not be overlooked. Depending on the situation, exchanging your digital assets for a liquidity pool token, which symbolizes your ownership in the pool, could result in a taxable event subject to the usual capital gains regulations. Conversely, when you stake your tokens in the pool and then acquire rewards tokens, taxes are typically incurred when you collect those rewards.

Exiting a liquidity pool and assessing gains or losses presents an additional tax consideration. The absence of clear IRS directives regarding liquidity mining has generated ambiguity. Comparisons to the IRS’s treatment of airdrop and fork coin income have fueled speculation that similar categorization may be applied to liquidity mining rewards, potentially classifying them as income instead of capital gains.

Crypto Tax on Airdrops and Hard Forks

According to official IRS guidelines, airdrops and hard forks are subject to taxation. The taxable income should be based on the digital currency’s fair market value (FMV) when it is received. The timestamp on the transaction ledger or blockchain determines the date of receipt.

Crypto Taxes on Bankruptcies

If you find yourself in possession of cryptocurrency that loses value due to another entity’s bankruptcy following the resolution of a cryptocurrency company’s insolvency proceedings, you may offset the loss incurred by using the initial purchase price of the cryptocurrency against any gains you have made.

Should you experience an excess loss, you can deduct it from your usual income sources, like salaries, up to $3,000 for single filers or those married filing jointly ($1,500 for married filing separately). Any leftover loss beyond this threshold can be rolled over to the next tax year for application.

Crypto Taxes on Crypto Gifts and Crypto Donations

In the case of receiving cryptocurrency as a gift, the aspect of gifting taxes is not triggered at the onset. Tax implications arise when the cryptocurrency is sold, leading to potential capital gains or losses for the recipient. If the digital assets are sold at a profit, the recipient’s cost basis aligns with that of the donor. Conversely, suppose the cryptocurrency is sold at a loss. In that case, the recipient’s basis is determined by taking the lower value between the donor’s basis and the fair market value at the time of receipt.

There are no tax implications to consider when presenting cryptocurrency as a gift. However, receivers need to be aware of the donor’s original asset value. If you choose to contribute cryptocurrency to a charitable organization recognized under section 501(c)(3), you can claim a tax-free deduction.

Crypto tax from Crypto Mining

The taxation rules surrounding crypto mining vary depending on the geographical region. In the United States, individuals engaged in crypto mining can anticipate taxes on their mining rewards as income and on the capital gains generated from the sale of mined coins. There are differences in how taxes are imposed on hobbyist miners compared to professional miners running mining operations as a business. Professional miners may be eligible for certain tax deductions based on business activities.

Crypto Taxes on DeFi

When engaging in DeFi crypto staking, the returns generated may be liable for taxation under either capital gains or income, depending on how they are received. These returns can come in the form of additional tokens or an appreciation in the value of the tokens already held. Some DeFi platforms offer interest or incentives by depositing extra coins directly into the lender’s wallet.

Crypto Tax on DAOs

In instances where a US taxpayer receives cryptocurrency from a decentralized autonomous organization (DAO) in exchange for goods or services, it is obligatory to disclose this as income. Any gains made from selling these assets later on are liable to be taxed as capital gains. Moreover, if the distributions include governance tokens or non-fungible tokens (NFTs), they are also considered taxable income. Profits derived from vending these allocated assets are similarly subject to capital gains taxation.

Crypto Taxes on NFTs

When it comes to selling NFTs, it’s important to note that taxes are inevitable for US taxpayers, and there is no way to sidestep them legally. The IRS classifies NFTs as property, and depending on the nature of the NFT, it may fall under the category of collectibles, which could mean facing higher tax rates.

In line with the different categories, proceeds, and deficits arising from the sale of NFTs are required to be disclosed on tax documents, with tax rates contingent upon how long the NFT was held and the individual’s total income. The IRS announced a novel strategy for taxing NFTs as collectibles in March 2023, resulting in specific NFT profits being subject to a flat 28% tax rate, diverging from the usual capital gains rates.

New IRS rules for Venmo Tax for the 2023 tax filing in 2024

Posted by admin on March 14, 2024
Last modified: March 15, 2024

In your side gig, you rely on Venmo to handle transactions. Are your earnings from such ventures receiving increased scrutiny from the IRS Venmo tax this year? 

No. At present, there have been no changes.

To ensure transparency and accountability, individuals have long been required to disclose their earnings to the IRS once their income surpasses $400. To enhance adherence to tax regulations, digital payment platforms and online marketplaces such as Venmo, PayPal, eBay, and Airbnb were expected to intensify their monitoring and reporting of sales transactions starting in 2023. This information would be detailed in the IRS Form 1099-K for Venmo Tax, which would be furnished to both the IRS and the taxpayer.

The IRS has once again delayed the requirement for online payment processors and marketplaces to issue tax forms for payments over $600, which affects individuals earning income through these platforms.

As we approach tax season, it’s important to remember that the traditional regulations remain in place. Those engaged in selling goods or services must issue 1099-Ks once their sales exceed 200 transactions and reach $20,000 in total payments throughout the year.

In preparation for the tax year 2024, the IRS has announced its intent to reduce the threshold to $5,000 for total payments made yearly without setting any transaction minimums. This adjustment will be incremental until it reaches the permanent threshold of $600 for total payments. Despite these changes, individuals might continue to receive the necessary forms for payment amounts exceeding the newly established lower thresholds.

In light of the situation, the IRS has determined that additional time is necessary to address any potential challenges that could surface with the distribution of numerous new forms to individuals who may not anticipate receiving them or who may not have any tax liabilities, including Venmo Tax.

Contact your PriorTax dedicated Tax Professional to walk you through the latest updates on Venmo tax and Crypto tax, including any taxes you may own from past years in any digital payments and crypto transactions.

venmo tax

Venmo tax and Crypto tax rules for 2023 and 2024

It is convenient when utilizing Venmo to transfer funds, request payments, or receive money. Nevertheless, engaging in specific transaction types through Venmo may lead to potential tax obligations.

Fortunately, individual payments made through the platform generally do not result in tax obligations. However, if Venmo is utilized for business-related transactions, it is essential to anticipate potential tax liabilities.

Unsure of how taxes are applied to transactions made on Venmo? Delve into this guide for insights. Discover the types of Venmo transactions subject to taxation by the Internal Revenue Service and key considerations for tax preparation. Additionally, explore anticipated tax adjustments affecting Venmo and similar payment platforms expected in 2024.

What is the $600 tax rule for digital payments

Introducing a recent regulation, the $600 tax provision is poised to impact third-party payment services such as Venmo, PayPal, and Cash App. Users who generate over $600 in earnings on these platforms during a tax year will be subject to Form 1099-K reporting. Although initially scheduled for implementation in 2023, the rule has been postponed, meaning users will feel its effects in the 2024 tax season.

Will Venmo Payments be taxed in 2024 for filing 2023 tax return?

It is mandatory to report and pay taxes on income received via Venmo for the year 2023 and beyond. Nonetheless, the IRS has postponed the introduction of updated Form 1099-K threshold regulations.

In the upcoming tax year of 2023, individuals can anticipate receiving a 1099-K tax form if their Venmo payments for goods and services exceed $20,000 and involve a minimum of 200 transactions. Nevertheless, it remains crucial for taxpayers to report any Venmo income that falls below these thresholds and ensure compliance with tax obligations, irrespective of whether a 1099-K is received.

Do I pay taxes if I sold cryptocurrency and bitcoin using Venmo?

Upon completing a cryptocurrency transaction or buying or selling bitcoins on Venmo, you can expect to be provided with a statement detailing your gains and losses. It is important to note that when selling crypto on any platform, the profits incurred are liable to capital gains taxes. In some instances, you might mitigate some gains by utilizing capital losses. Seeking guidance from a tax specialist is advisable to gain a clear understanding of the regulations in place.

Crypto Tax Filing in 2023

Posted by admin on January 26, 2023
Last modified: February 13, 2023

How to Prepare and Report your Crypto Gains and Losses when filing Crypto Tax

Want to know the best way to compute crypto tax for profits and losses? It all depends on what country you reside in. In America, digital currencies are classified as a form of property, with both short-term and long-term capital gains regulations that apply. For those in the United States, understanding your tax liability when it comes to crypto can be a complex process. Crypto is treated as property for taxation purposes, which means gains and losses must be calculated according to long-term and short-term capital gain rules.

When filing taxes, it is fundamental to accurately calculate crypto gains or losses. Two elements play a major role in this: the holding period and realized profits or losses. It is, therefore, essential to understand these two components when computing your crypto tax.

When it comes to taxation, what are the rules regarding cryptocurrency?

In the United States, the taxation of crypto is similar to that of other forms of property. Therefore, both short-term and long-term capital gains regulations are applicable. Regarding taxes on crypto earnings, the rate is equal to that imposed on profits made from investments in stocks.

When determining one’s crypto taxes, both gains and losses must be taken into account. To help with this process, a specialized tax calculator can be utilized. Our tax calculator is perfect for this purpose.

Again, when filing taxes, it’s important to consider your crypto gains or losses carefully. This requires a thorough understanding of two primary components: realized gains/losses and the holding period. Calculating these accurately will ensure that you have precise figures when completing your tax return.

Factors to consider when calculating your crypto tax?

crypto tax

When it comes to filing crypto taxes, there are two key components that must be taken into account. Specifically, the calculation of crypto tax requires an awareness of how cryptocurrency is taxed as either short- or long-term capital gains.

When engaging in crypto trading or sales within the U.S., the rate of tax is determined by two key factors

– your realized gains (or losses) and 

– length of time you held a certain cryptocurrency prior to trading or selling it (the holding period).

Beginning one day after a purchase or transaction of cryptocurrency, and completing when you trade or sell it, constitutes what is known as a ‘holding period.’ Additionally, making purchases with crypto sets in motion a taxable event.

Crypto Tax Filing Example

In this case, after buying $10,000 worth of ETH, it was exchanged for $20,000 in BTC a month later. This created a taxable gain of $10,000. The taxable gain is $20,000 − $10,000 = $10,000. After just two months, this amount had increased by another $30,000 when the value of your BTC rose to $50,000. From that point, it could be used to purchase GameStop (GME) stocks with a total taxable short-term capital gain for the year being recorded as $30,000. Here the taxable gain is $50,000 − $20,000 = $30,000.

Best ways to calculate crypto tax with PriorTax and our Tax Professionals

Figuring out your crypto taxes can seem daunting at first, but here at PriorTax, we make it easy! We provide an account you can use to calculate your crypto gains and taxes. Alternatively, you can leave all those calculations to our experienced team of professionals. Either way, you can file your crypto taxes with us.

Maintaining accurate records is essential for those who own cryptocurrency. A crypto tax calculator can help calculate realized gains or losses and their respective tax implications to make the job easier. In addition, such calculators can provide a great deal of insight into how much one’s finances are affected by trading cryptocurrency.

Crypto Tax

Posted by admin on February 1, 2022
Last modified: February 1, 2022

Ultimate Guide to Cryptocurrency Tax.

How to Prepare Tax on Crypto?

Did you know that, for the IRS’s purposes, crypto tax is based on the fact that they consider cryptocurrency to be property?

One of the first questions on Form 1040 (the main U.S. Individual Income Tax Return form) is a yes or no question. At any time during 2021, did you receive, sell, exchange or otherwise dispose of any financial interest in any virtual currency? A version of this question first appeared on Form 1040 in 2020 and is there this year too.

According to the cryptocurrency exchange platform Coinbase, more than 10 percent of Americans traded cryptocurrencies in 2021. And cryptocurrencies are only growing more popular. Are you one of the many Americans holding, trading, and/or mining crypto? If so, it’s essential this tax season to be on top of what the IRS’s regulations for crypto tax means for your situation.

crypto tax
crypto tax

So, Crypto is Considered Property?

When thinking about crypto tax requirements, there are “taxable events” that the IRS will be interested in related to crypto transactions.

The IRS states that “Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.” What does that mean for us, individual taxpayers? 

Certain activities related to holding and trading crypto will make you liable for capital gains taxes from certain activities:

  • selling crypto for cash
  • exchanging/trading one cryptocurrency for another
  • making purchases with crypto

It also means that activities like buying crypto or transferring assets between exchanges (on a like-for-like basis) are non-taxable events. You will only incur tax on crypto and make transactions that are taxable events when you have realized gains or losses from selling crypto. Whether that is for cash, to buy a new crypto, or purchase goods and services. 

What does it mean practically for cryptocurrency tax obligations.

Capital gains taxes on assets will differ depending on how long you’ve held your cryptocurrency before selling. Similar to income taxes, capital gains taxes are also progressive. The tax rate increase as the taxable amount increases. Additionally, there are different rates for long-term gains versus short-term gains. Long-term gains will be taxed at a reduced rate compared with short-term gains, and these rates will vary depending on your income.

Depending on your income level, you can also be liable for the Net Investment Income Tax, which is set at 3.8 percent. In addition to crypto, net investment income also includes things like other forms of capital gains, interest, dividends, and rental and royalty income.

There are also instances when cryptocurrency that you receive will need to be reported as income. Taxable events that fall under this category include activities such as:

  • being paid in cryptocurrency
  • both staking and mining cryptocurrency
  • airdrops from hard forks

Both gifting and donating cryptocurrency are treated like other gifting and donating activities for tax purposes.

Remember to keep track of crypto transactions across any exchanges you use both for filing purposes. Especially for reporting capital losses that can be deductible. It is subject of course to the limitations on the deductibility of capital losses.

What IRS forms should I know about when paying tax on crypto?

Form 1040, the U.S. Individual Income Tax Return

Form 1040, the U.S. Individual Income Tax Return, will ask you about receiving, selling, exchanging, or disposing of crypto in the form of a yes or no question.

 Form 8949, Sales and Other Dispositions of Capital Assets

You’ll use Form 8949, Sales and Other Dispositions of Capital Assets. This is to list your capital gain and loss transactions (crypto tax events taxable as property). 

Schedule D (Form 1040), Capital Gains and Losses

You’ll use Schedule D (Form 1040), Capital Gains and Losses to aggregate and calculate your gains or losses based on the information from From 8949. 

Schedule 1 (Form 1040), Additional Income and Adjustments to Income

You’ll use Schedule 1 (Form 1040), Additional Income and Adjustments to Income to report income from activities like staking or mining (crypto tax events taxable as income).

File your crypto tax with PriorTax.com. We answer question prompts that will ensure you accurately report your capital gains and losses and other forms of income related to your crypto activities. If you receive a Form 1099-MISC from any exchange platforms, they will be helpful in ensuring you are correctly fulling your crypto tax obligations.

Additional records like gain/loss reports as well as raw transaction reports can also be really vital here to calculate your gains and losses for accurate reporting.

Crypto Tax Calculator

I want to estimate how much I’ll get back when I file my taxes. How do I factor in cryptocurrency tax obligations when using the 2021 Tax Calculator?

Take all of your transactions at each of your exchanges as your starting point. If not already calculated for you, you’ll need to calculate your capital gains and losses.

Then, in the “Investments” tab, under “Income,” you’ll use this information to fill in fields for Capital Gains or Losses. There are separate fields for short-term and long-term capital gains and losses. In the “Other” tab, also under “Income,” you can record crypto taxable events that are treated as income. Events such as staking, mining, airdrops, being paid in crypto in the field for Other Income.

Have questions about crypto tax obligations and regulations? 

In addition to certified tax professionals like those at PriorTax.com, the IRS’s own website can be an excellent source of information for all things related to crypto taxes. The IRS maintains an FAQ on Virtual Currency Transactions that will cover many of the activities. They are part and parcel of using crypto or “Virtual Currency,”. You’ll find them referred to on their websites. 

The IRS has also published guidance regarding tax on transactions using crypto. This is also available on the IRS’s website in the bulletin IRS Notice 2014-21, IRB 2014-16.

Keep up to date with PriorTax.com’s Tax News Blog. On the blog, we share helpful information on topics like tax obligations on crypto and more to make sure you have everything at your fingertips to tackle your taxes with confidence. And when you’re ready to file your current year or any prior-year tax return, we’re here to help you through the process. We can help you avoid racking up any more penalties and claim the fullest tax refund you are eligible for.