Hi, I’m Bette Hochberger, CPA, CGMA, and today I will be discussing crypto taxes. Understanding crypto taxes is crucial for compliance, accurate records, and maximizing returns. If you want to learn more, keep reading.

Do I Owe Crypto Taxes?

US taxes on cryptocurrency follow similar rules as capital assets like stocks and bonds, with varying tax rates on income generated from crypto depending on factors like duration of ownership and acquisition method.

Examining how you utilize your cryptocurrency is crucial to determine if you owe taxes. Taxable events refer to transactions that trigger tax obligations, while non-taxable events refer to those that do not.

Not Taxable

  • Buying and holding Crypto: Buying and owning cryptocurrency is not taxable, but when you sell it, you may owe taxes on any gains you realize from the sale.
  • Donating Crypto to a charity: If you donate cryptocurrency directly to a qualifying charitable organization, you may be eligible for a tax deduction.
  • Receiving Crypto as a gift: You generally won’t owe taxes on crypto gifts until you sell them or engage in another taxable activity.
  • Giving Crypto as a gift: You can gift up to $15,000 per year without paying taxes. If your gift exceeds that amount, you may need to file a gift tax return.
  • Transferring Crypto to yourself: Moving cryptocurrency between your wallets or accounts is not taxable. You can maintain your original cost basis and date of acquisition to track potential tax impacts when you eventually sell.

Taxable as Capital Gains

  • Selling Crypto for Cash: If you sell cryptocurrency for more than you paid for it, you owe taxes. If you sell for less, you may be able to deduct the loss from your taxes.
  • Converting one Crypto to another: When you swap one cryptocurrency for another, such as trading bitcoin for ether, the action is considered a taxable event. You’d owe taxes if you sold your Bitcoin for more than you paid.
  • Spending Crypto on Goods and Services: Using cryptocurrency to purchase goods or services is also taxable. When you sell crypto to pay for something, you trigger a taxable event that is subject to capital gains taxes

Taxable as Income

  • Getting paid in Crypto: If you’re paid in cryptocurrency, it’s taxed as compensation according to your income tax bracket.
  • Getting Crypto for Goods or Services: If you accept cryptocurrency in exchange for goods or services, you must report it as income to the IRS.
  • Mining Crypto: If you mine cryptocurrency, you’ll likely owe taxes on your earnings based on the fair market value of the mined coins when you receive them. If you mine crypto as a business, it’s taxed as self-employment income.
  • Earning staking rewards: Staking rewards are taxed like mining proceeds based on the fair market value of your rewards on the day you receive them.
  • Earning other income: If you earn rewards from holding certain cryptocurrencies or holding cbETH (Coinbase Wrapped Staked ETH), it’s considered taxable income.
  • Getting Crypto from a hard fork: Tax implications of crypto from a hard fork vary based on usage and availability on the exchange.
  • Getting an airdrop: If you receive an airdrop, it’s taxable as income, and you must report it on your taxes.
  • Receiving other incentives or rewards: You must report it as income regardless of why you receive free crypto.

Consider hiring a crypto tax professional for help with the complex and evolving tax laws and regulations surrounding cryptocurrencies. They can also help you identify deductions and credits that can reduce your tax liability and provide guidance on tax planning strategies for future years.

As a Crypto CPA, I’d be happy to help you with your crypto taxes if you want help. Feel free to schedule a meeting with me here.

As always, stay safe, and I will see you next time.