US Crypto Taxes Explained For September 2024

If you’re based in the US and have previously traded crypto, you might owe taxes.

The IRS views crypto as property, so profits are subject to capital gains tax. Crypto income – such as staking and mining, also constitutes a taxable event.

If you’re confused about crypto taxes in the US, read on. We cover what crypto transactions are taxed, what rates to expect, and what you can do to reduce what you owe.

US Crypto Tax Rates

To determine what crypto tax needs to be paid, you’ll first need to assess whether it’s a short or long-term investment.

Let’s suppose you bought $1,000 worth of Bitcoin in January 2024. Two months later, you cash out for $2,500. That’s a short-term capital gain of $1,500, as the investment was held for under 12 months.

In this instance, the short-term gain of $1,500 is added to your income for the year. This means it will be taxed at your ordinary income rate. For instance, suppose you earned a salary of $40,000. After adding in the $1,500 crypto gain, your total income is now $41,500.

In addition, earning crypto from staking, liquidity farming, and mining should also be added to your income. This should be added in the same year it was earned, even if you haven’t sold the crypto assets. More on this later.

Check out the table below, which highlights US income tax rates for 2024.

Now let’s consider long-term capital gains on crypto investments. Suppose you invested $5,000 into Ethereum in January 2022. In May 2024, you cash out your Ethereum investment for $15,000. That’s a long-term capital gain of $10,000.

The tax you pay on this gain depends on your income range.

• For example, single filers earning less than $47,025 won’t pay any capital gains tax.
• Single filers earning between $47,025 and $518,000 will pay 15%.
• While those earning above $518,000 pay 20%.

However, other filing statuses are treated differently.

Long-term capital gains tax rates can be found in the table below:

US Cryptocurrency Taxes Explained

Still not sure how cryptocurrency tax works? This section leaves no stone unturned.

Crypto Capital Gains Tax

If you sell a crypto investment for a profit, capital gains tax will apply. This is the same as other investments, be it stocks or ETFs. For instance, suppose you buy 1 BTC when it’s worth $20,000. You sell that 1 BTC for $24,000. This represents a capital gain of $4,000.

Whether you pay short and long-term capital gains tax depends on how long the crypto investment was held.

• If it was held for under one year, you’ll pay short-term capital gains tax. This means the $4,000 gain is added to your total income.
• If the investment was held for at least 12 months, you’ll benefit from long-term capital gains tax. This is taxed at 0%, 15%, or 20% depending on your income range.

Now, crypto capital gains tax isn’t only applicable when you sell crypto for cash. On the contrary, the crypto assets simply need to be ‘disposed’ of.

• For example, suppose you originally bought 1 ETH for $1,000. That 1 ETH is now worth $3,000.
• You swap your 1 ETH for 22 SOL. Even though you didn’t cash out, you’ve still disposed of the original 1 ETH.
• You did so when 1 ETH was worth $3,000, so you’ve made a capital gain of $2,000. This is because the original cost basis was $1,000.

Similarly, paying for goods or services with crypto can also trigger a taxable event.

• Suppose you bought 1 BTC in 2022 for $10,000. That 1 BTC is now worth $30,000.
• You use 0.2 BTC to make an online purchase. This is a disposal, meaning the capital gains need to be accounted for.
• The original cost basis for the 0.2 BTC is $2,000 (1 BTC was $10,000 x 0.2 BTC).
• The sale price for the 0.2 BTC is $6,000 (1 BTC is $30,000 x 0.2 BTC).
• This means the online purchase has resulted in capital gains of $4,000 ($6,000 – $,000).

Many US traders are still unaware that token swaps and crypto purchases are considered a disposal. This means crypto taxes could be owed from previous years.

Tax on Buying and Selling Cryptocurrencies 

You can buy crypto without paying taxes. The only information the IRS is interested in is the cost basis. This is the amount you paid for the crypto at the time of the investment. For example, if you paid $50,000 for 2 BTC, your cost basis is $25,000 per 1 BTC.

Selling crypto is defined as a disposal. Not only selling crypto for US dollars but digital assets too. For example, if you sell Ethereum for Tether, it’s still a disposal from the IRS’s perspective.

Whether or not you need to pay tax depends on the cost basis and the sale price.

• For example, if you bought 10 BNB for $6,000 but cashed out at $5,000, you’ve made a capital loss of $1,000. This can be offset against any other capital gains you made during the year.
• Conversely, suppose you waited a few months and eventually sold the 10 BNB for $10,000. You’ve made a capital gain of $4,000.

Once again, the crypto tax rate depends on whether it’s a short or long-term investment.

Tax on Crypto Staking, Lending, and Interest Profits 

When you earn crypto from staking, lending, savings accounts, or liquidity farming, the IRS views this as income. The proceeds will be added to your income for the year. This is based on the value of the crypto income when it was received.

• For example, suppose you deposited 1 ETH into a savings account. The account yields interest of 0.1 ETH per month.
• When you receive your first interest payment, 1 ETH is valued at $2,500. At 0.1 ETH, you’d need to add $250 to your income.
• When the second interest payment is received, 1 ETH is valued at $3,000. At 0.1 ETH, you’d need to add $300 to your income.

At the end of the year, you’d need to add your interest payments to any other income you’ve received, such as your salary. This will then be taxed accordingly, based on the respective income range.

You also need to consider the tax implications of selling your crypto income.

• For example, we mentioned that your first interest payment was 0.1 ETH, valued at $250. If you sold the 0.1 ETH instantly, no capital gains would be applied. This is because the cost basis and sale price were both $250.
• However, suppose you decided to hold onto the 0.1 ETH for several months. When you eventually sold, the 0.1 ETH was worth $350. This means you’ve made a capital gain of $100.

We found that the top crypto savings accounts offer weekly interest payments. This can make the tax calculation cumbersome.

Each interest payment would have a different value, which needs to be added to your income. And when you sell, you might also need to factor in capital gains. Therefore, investors should keep records of all crypto transactions.

Crypto Mining Tax

Crypto mining can be taxed as income and capital gains, just like staking and interest accounts.

Let’s look at a reliable example.

• Suppose you’re using a cloud mining platform to mine Bitcoin. After the first week, you receive 0.02 BTC worth of mining rewards.
• On that day, Bitcoin is valued at $35,000. This values your 0.02 BTC mining reward at $700. This needs to be added to your income for the year.
• A few months later, that 0.02 BTC is sold on a crypto exchange. On that day, Bitcoin is trading at $45,000. This values the 0.02 BTC sale at $900.
• This is $200 more than when you originally received the mining reward. Therefore, you’ve made short-term capital gains of $200. This will be taxed at your ordinary tax rate.

In terms of deducting expenses, this is possible if you’re mining as a business. This means you can deduct costs related to mining equipment, electricity, and repairs.

However, you won’t be able to deduct these expenses if you’re mining at home as a hobby.

Tax on Crypto Gifts

In general, you can gift crypto to another person without triggering a taxable event. In 2024, you can gift up to $18,000 without needing to report the transfer to the IRS.

However, do note that the person receiving the gift will inherit your cost basis.

• For example, suppose you invested $30,000 into Bitcoin, which got you 3 BTC at the time. This means your cost basis is $10,000 per 1 BTC.
• A few years later, you gift 1 BTC to a friend. On that day, 1 BTC is worth $25,000.
• This isn’t a capital gain at this stage, because the 1 BTC hasn’t been sold. However, the giftee still has a cost basis of $10,000, which is what you originally paid.
• Therefore, if they do decide to sell, this would trigger a capital gain of $15,000.

You can gift more than $18,000 without paying tax. But this would need to be reported to the IRS.

Are There Any Tax-Free Crypto Transactions in the US?

Some crypto transactions in the US do not trigger a taxable event. This includes investing in crypto assets with fiat money.

You can also transfer crypto between wallets without it being classed as a disposal. For example, if you transfer Bitcoin from Electrum to Exodus. However, if the wallet belongs to somebody else, this could be marked as a taxable event.

You can also hold crypto for as long as you want without paying taxes. This is the same as other investments like stocks. We’ve also established that gifting crypto is tax-free. This is also the case when you donate crypto to an approved charity.

How to Calculate Crypto Tax

It’s best to use a qualified advisor when calculating your crypto taxes. This will ensure you’re reporting the correct amounts to the IRS.

Nonetheless, here’s an overview of how to evaluate what you might owe.

Separate Short-Term and Long-Term Disposals

The first step is to separate all of your short and long-term disposals.

• So, any crypto investments that were held for under 12 months are short-term trades.
• And any investments held for over 12 months are long-term trades.

This is important, as short and long-term crypto gains are taxed differently.

Calculate Crypto Gains and Losses

The next step is to calculate all of your crypto gains and losses for the year. This needs to be done separately for your short and long-term transactions.

For instance, let’s say you made two long-term trades. The first made gains of $15,000. The second made a $10,000 loss. Therefore, you’ve made long-term capital gains of $5,000.

In the same year, you made three short-term trades. Two trades generated a total gain of $9,000. The other made a $1,000 loss. This means you’ve made short-term gains of $8,000 for the year.

Long-Term Gains

We’ve established that you made long-term capital gains of $5,000. This will be taxed at 0%, 15%, or 20% – depending on your filing status and income range.

We’ll say you’re a single filer with a total income of $50,000. This sits between the $47,025 – $518,000 range, meaning you’ll pay a capital gains tax rate of 15%. On long-term gains of $5,000, your crypto taxes are $750.

Short-Term Gains

Continuing with our example, you made short-term crypto gains of $8,000 in the same year. Short-term gains are added to your total income for the year. You made a salary of $50,000. With the $8,000 short-term gain, your total income is $58,000.

The US uses a progressive tax framework, so let’s assess what taxes you’d pay. This is based on being a single filer. Other filing statuses are taxed differently.

• The first $11,000 you earn is taxed at 10%.
• Everything between $11,000 and $44,725 is taxed at 12%
• The remaining income is taxed at 22%.

Income

You’ll also need to calculate your crypto income, such as savings accounts and staking rewards. The value of the income, on the day it was received, must be reported to the IRS. This is then added to your total income.

This needs to be done for each transaction. So, if you received daily staking rewards throughout the year, that’s 365 different cost prices. In this instance, you’d want to use some software. The best crypto tax software will scan your exchange accounts and wallets, and summarize what needs to be added to your income.

As we mentioned, if you sell any of the crypto income you earned, capital gains (or losses) also need to be factored in. This will depend on the cost basis when you receive the income, and the eventual sale price.

1. Blockpit — Superb Crypto Tax Software for Diversified Investors That Optimize Taxes

Blockpit is an advanced crypto tax software designed to help diversified investors, as it supports not only coins and tokens but also NFTs, precious metals, and more.

The platform offers support to over 300,000 assets, including 160+ exchanges, 180+ blockchains, 70+ wallet providers, and over 2500 dApps. For non-supported platforms, users can perform CSV file uploads.

One of Blockpit’s standout features is its support for multiple countries, providing detailed and accurate legal frameworks for over ten jurisdictions, including pre-filled annual tax forms.

Additionally, Blockpit has just announced its Tax Optimization feature that allows users to simulate different actions within their portfolio, such as selling their highest-taxed assets or identifying the best options for tax-loss harvesting.

Blockpit lets you preview your capital gains for any tax year for free. However, to get a tax report, you will need to get on a paid plan.

Subscriptions start from $49 per tax year, which is the entry level, excellent for crypto investors with less than 50 transactions.

You can click the link below to claim an exclusive discount of 15% on your first purchase at Blockpit.

2. Koinly — Leading Crypto Tax Software Ideal For Crypto Traders With Over 10,000 Transactions

Koinly is a popular crypto tax software as it can seamlessly turn thousands of transactions into a simplified tax report. All you have to do is use an API or a CSV file from your exchanges and crypto wallets and Koinly will do the rest.

This could be an ideal option for crypto traders with over 10,000 transactions because it will cost you $179 per year. Competitors charge between $200 and $300 for the same transaction numbers. Of course, there are options for everyone, even for crypto enthusiasts with less than 100 transactions per tax year.

Koinly lets you preview your capital gains for any tax year for free. However, to get a tax report, you will need to subscribe.

Subscriptions start from $49 per tax year, which is the entry level, excellent for crypto investors with less than 100 transactions.

3. CoinLedger — Excellent Crypto Tax Reporting For All of Your DeFi Transactions

CoinLedger is an excellent crypto tax reporting software where you import your transactions from exchanges and wallets, you preview the report and you generate a tax report. This includes all your cryptocurrency and NFT activity across DeFi platforms.

As of this writing, CoinLedger builds a portfolio tracker were you’ll monitor all of your digital assets in a single dashboard. Sign up for the waitlist if you want to be among the first users to try it.

CoinLedger has partnered with TurboTax where you can directly import your tax report into TurboTax Online, TurboTax Desktop, TaxAct and other tax platforms.

You can view your crypto activity with the free version, but you won’t be able to get a tax report. Subscription starts from $49 per tax season for those with up to 100 transactions. Get 10% discount by using the code: CRYPTOTAX10 at checkout. If you’re not happy, there’s a 14 day money back guarantee.

4. CoinPanda — Crypto Tax Reporting Tool With Portfolio Tracking of Over 50,000 Cryptocurrencies

CoinPanda is an excellent tax reporting software that tracks your transactions across DeFi platforms, centralized exchanges and crypto wallets. Everything from staking and lending to yield farming is covered. There are over 50,000 cryptocurrencies supported, which can create a detailed tax report.

Import your transactions either as a CSV file or via an API and CoinPanda will generate a preview of your capital gains or losses for free. To generate your tax report, you will have to subscribe, however, with one of the paid plans based on the number of your transactions.

Pricing starts from $49 per tax year, which is enough for crypto investors doing up to 100 transactions. Use the button below and get $15 discount (around £11) when you sign up.

5. ZenLedger — Excellent Tax Reporting Tool That Tracks Airdrops, Forks and DeFi Activity

ZenLedger offers a powerful tool where you can easily see your cost basis and capital gains. Once you import your transactions using API or CSV, the platform will calculate your tax liability for every crypto transaction.

There’s a portfolio tracker in the pipeline where you can monitor all of your crypto accounts and wallets within one dashboard. Join the waitlist if you want to be among the first to try it.

Unlike competitor tax reporting tools, ZenLedger offers premium support for all accounts, even the free ones. However, DeFi and NFTs aren’t supported with the free and Starter membership levels.

Starting from $49 per year for up to 100 transactions, pricing is similar to other platforms. Make sure to compare membership levels to choose the right one for your needs.

6. TokenTax — Get Your Crypto Tax Report or Have the Experts do it For You

TokenTax offers a powerful crypto tax reporting software where you can import your transactions and get the report yourself or get the VIP package and the TokenTax experts will prepare your tax reports for you.

The company is an official TurboTax partner, meaning you get thorough and accurate tax filing. Similar to other tax reporting tools, all you need to do is use an API or upload the CSV file and you’re ready to go.

TokenTax is one of the rare crypto tax reporting tools that doesn’t offer a free preview. Instead, you have to get one of the four membership levels, starting from Basic with a $65 per tax year. This can be a solid option for crypto investors and enthusiasts with less than 100 transactions.

If you have up to 30,000 transactions and you don’t want to go through the hassle, buy VIP package and let the experts prepare your tax report.

Does the IRS Track Crypto?

You should report all crypto disposals to the IRS within the permitted time frame. Failure to do so can lead to penalties.

So that begs the question: Does the IRS track your crypto investments?

Put simply, US exchanges are now required to report your crypto endeavors to the IRS. This covers some of the best crypto exchanges, such as Coinbase and Kraken. That said, whether or not the exchange notifies the IRS is irrelevant. You still need to file your taxes yourself.

If the IRS suspects that you’re not reporting the correct amounts, it has other means to investigate your crypto investments. For instance, the IRS has previously worked with blockchain forensic companies like Chainalysis. This means it can attempt to link wallets and exchange accounts to your identity.

Are There Ways to Reduce How Much Crypto Tax You Pay in the US?

Wondering how to avoid crypto taxes in the US? We’ll now discuss some of the common strategies.

Invest via a Crypto IRA

The best way to avoid crypto taxes is to invest through an IRA. Traditional brokers don’t currently offer crypto IRAs, so you’ll need to use a specialist provider.

One of the best Bitcoin IRAs is ‘Bitcoin IRA’. Several other options exist, such as iTrustCapital and Coin IRA.

Nevertheless, you can invest up to $7,000 in a crypto IRA without paying any tax. This is increased to $8,000 for those aged over 50. Just make sure you consider the risks of adding crypto to your retirement portfolio.

Add a Bitcoin ETF to your 401 (k) Plan

The SEC recently approved multiple Bitcoin ETFs. This means that Bitcoin ETFs will soon make their way to 401 (k) plans. What’s more, 401(k) limits are much higher than IRAs. In 2024, you can invest up to $23,000.

If you opt for a Roth 401 (k), you won’t pay any taxes when eventually retire and cash out. Opting for a Traditional 401 (k) means you’ll make investments without paying taxes on the principle.

However, remember that you’re relying on third-party custodians when investing in Bitcoin ETFs. Moreover, there can be a disparity between the Bitcoin spot price and the value of your ETF investment.

Hold for at Least 12 Months

Holding onto your crypto investment for at least 12 months can be beneficial. This is because you’ll pay long-term capital gains tax. This means paying 0%, 15%, or 20% depending on your income.

In contrast, short-term capital gains are added to your total income for the year. This means you could pay up to 37%.

Don’t Sell Your Crypto

Put simply, if you don’t sell your crypto, you won’t owe any taxes. The IRS only taxes realizable gains.

Crucially, gains aren’t realized until the crypto assets have been disposed of. This means selling your crypto, or exchanging it for another coin or token.

Gift Your Crypto

Gifting crypto to another person can also help you avoid taxes. However, just remember that you’ll lose ownership of the cryptocurrencies.

Moreover, the person receiving the gift will inherit your original cost basis. Nonetheless, gifting crypto is a great way to reduce your tax burden.

• For instance, suppose you originally bought 1 BTC for $25,000. It’s now worth $55,000.
• If you sell, you’d generate capital gains of $30,000.
• Instead, you decide to gift the 1 BTC to a family member, so there’s no disposal.
• The family member will have the same cost basis of $25,000.They’ll only trigger a taxable event when they sell.

Can You Claim Crypto Losses on Taxes in the US?

Just like other assets, the IRS enables US investors to offset crypto losses. While there are no limits on how much of your losses can be offset, some considerations need to be made.

For a start, losses first need to be offset against other capital gains. This initially needs to be within the same category. For example, short-term losses should be offset against short-term gains. And vice versa for long-term investments.

For example, suppose you made short-term stock gains of $6,000. You made short-term crypto losses of $9,000. Overall, that leaves you with short-term capital losses of $3,000. That $3,000 loss can then be used to offset long-term gains.

For instance, suppose you made long-term stock gains of $14,000. After using your $3,000 short-term loss, your long-term gains are reduced to $11,000.

So what happens if you have crypto losses but no other investment gains to offset? The IRS allows you to offset up to $3,000 worth of losses against your income total.

• For example, let’s say you made crypto losses of $11,000. You made no other gains in the same year.
• Your salary is $60,000. You made no other income for the year.
• From your $11,000 crypto loss, you can use $3,000 against your salary. Therefore, your total income is reduced from $60,000 to $57,000. This means you’ll pay less tax.

You’re now left with $8,000 ($11,000 – $3,000) in crypto losses. This can be carried over to future years. Initially, you can use the $8,000 loss against other capital gains. After that, you can offset another $3,000 from your income. This process repeats itself until you’ve consumed all of your crypto losses.

Conclusion

Correctly reporting your crypto taxes to the IRS is crucial. You’ll need to account for all transactions that include a disposal. This includes cashing out for fiat, swapping tokens, and paying for goods with crypto.

Crypto income also needs to be reported, such as mining and staking. Consider speaking with a qualified advisor before filing your taxes. This will ensure you avoid mistakes and will help you maximize any potential deductions.

References

• https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets
• https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024
• https://www.irs.gov/taxtopics/tc409
• https://freemanlaw.com/taxation-of-crypto-mining/
• https://www.cnbc.com/2023/01/30/how-to-handle-cryptocurrency-losses-on-your-2022-tax-return.html
• https://www.irs.gov/pub/irs-pdf/f8949.pdf
• https://www.irs.gov/pub/irs-pdf/f1040sd.pdf
• https://www.irs.gov/pub/irs-pdf/f1040.pdf
• https://www.cnbc.com/2023/03/25/what-cryptocurrency-investors-should-know-about-filing-taxes.html
• https://www.cnbc.com/2023/12/22/the-spot-bitcoin-etf-race-could-quickly-reach-your-401k-plan.html

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Kane Pepi

Editor

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Kane Pepi

Editor

Kane Pepi is an accomplished financial and cryptocurrency writer who has an extensive portfolio of over 2,000 articles, guides, and market insights. With his expertise in specialized subjects such as asset valuation and analysis, portfolio management, and financial crime prevention, Kane has built a reputation for providing clear explanations of complex financial topics. He holds a Bachelor's Degree in Finance and a Master's Degree in Financial Crime, and is currently pursuing his Doctorate degree, which focuses on investigating the complexities of money laundering in the cryptocurrency and blockchain technology sectors. Kane's wealth of knowledge and experience in the field make…

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