In the United States, the Internal Revenue Service (IRS) considers cryptocurrencies to be property for tax purposes. This means that many types of cryptocurrency transactions are subject to taxation. Before delving into the blog titled ‘Crypto Taxes in the US,’ take a look at the below key points regarding which cryptocurrency activities are taxable:
- If you sell cryptocurrency for cash, any gain or loss from this will be subject to taxation.
- If you exchange one cryptocurrency for another (for example, selling Bitcoin for purchasing Ethereum), your transaction will be subject to taxation.
- A transaction where you use cryptocurrency to pay for goods or services is also taxable.
As a cryptocurrency enthusiast in the US, you might be aware of well-regulated crypto taxes. The IRS (Internal Revenue Service) is responsible for overseeing crypto taxes in the US. The IRS is a bureau of the Department of the Treasury and serves as the nation’s tax collection agency.
If you’ve recently entered the ever-evolving world of cryptocurrency, understanding the crypto taxes in the US is essential. In case, you didn’t pay crypto taxes in the US according to laws, you could end up losing all the profits (like FTX founder Sam Bankman).
In this guide, we explain the necessary information related to US crypto taxes. Read this detailed blog post now to safeguard yourself from the IRS’s strict penalties.
Double-Game in Crypto? Think Again, IRS IS Tracking You
Let’s first clear your common misconception.
It is highly recommended that you stay honest, smart, and well-informed in the crypto world. Make trading decisions smartly and fulfill every legal requirement to remain a respected member of this dynamic community. If you thought about playing some double games, think twice. The IRS is keeping an eye on all of you.
Most transactions are made on public blockchains. Thus, government agencies like the IRS can easily trace your transactions and analyze them deeply to find any loopholes. In the case of private blockchains, the IRS has signed agreements with various exchanges to keep them informed of any suspicious activity.
Moreover, the IRS can also use subpoenas to extract data from cryptocurrency exchanges. Institutions such as Coinbase, Kraken, and Bitstamp have experienced such treatment in the past.
Under the Bank Secrecy Act (BSA), all cryptocurrency exchanges in the US are required to update the IRS on every transaction. This information includes all personal details (customer name, address, transaction details, and more) and tax identification numbers.
Recently, the IRS also hinted at launching Form 1099-DA to facilitate the accurate reporting of cryptocurrency transactions. Available on or after January 1, 2025, Form 1099-DA is required to be filled by every cryptocurrency exchange, trading platform, & all financial institutions.
How is Cryptocurrency Taxed in the USA?
IRS views cryptocurrencies as assets. Therefore, each time you make a profit via cryptocurrency (sell, exchange, purchase, mining), your gains become subject to taxation. In the crypto world, there are two types of crypto taxes in the US that you could apply for.
Federal Income Tax
Capital Gains Tax
Let’s discuss both of these in detail.
1. Federal Income Tax or Short-Term Capital Gains
Understand this by an example,
John buys 1 BTC for $10,000 in January 2023. Later that year, in November 2023, John sells the same Bitcoin for $15,000.
Here, John earned a Capital Gain of $5,000
Now, this capital gain will be considered a short-term capital gain as John only held the BTC for less than a year. Eventually, his capital gains will be taxed at ordinary income tax rates (as per Schedule D of Form 1040).
Federal income taxes are calculated according to the marginal tax rate (based on your income and the status of your tax filing). The table below shows the updated short-term capital gains tax rates in 2024.
| Rates | Tax Filing Status |
| 10% | Single Married CouplesHead of Household Up to $11,600Up to $23,200Up to $16,550 |
| 12% | Single Married Couples Head of Household $11,600 to $47,150$23,200 to $94,300$16,550 to $63,100 |
| 22% | Single Married Couples Head of Household $47,150 to $100,525$94,300 to $201,050$63,100 to $100,500 |
| 24% | Single Married Couples Head of Household $100, 525 to $191,950$201,050 to $383,900$100,500 to $191,950 |
| 32% | Single Married Couples Head of Household $191,950 to $243,725 $383,900 to $487,450$191,950 to $243,700 |
| 35% | Single Married Couples Head of Household $243,725 to $609,350$487,450 to $731,200$243,700 to $609,350 |
| 37% | Single Married Couples Head of Household $609,350+ $731,200+$609,350+ |
2. Capital Gains Tax Rates or Long-Term Capital Gains
Understood this by an example,
In March 2022, Sarah buys two Ethereum (ETH) for $1,000 each. She keeps the Ethereum until March 2024, when she sells them for $2,500 each.
Here, Sarah earned a capital gain of $3,000 (since she has 2 ETH).
Now, this capital gain will be considered a long-term capital gain as she held the ETH for more than one year.
Long-term capital gains are often preferred more in the crypto world as investors are required to pay less tax on it compared to short-term capital gains.
As per 2024 long-term Capital Gains Tax Rates, if you earn less than $47,05 as a single, you’re not required to pay long-term Capital Gains Tax at all.
Look at the table below to read 2024 Long-Term Capital Gains Tax Rates.
| Rates | Tax Filing Status |
| 0% | Single Filers Taxable IncomesMarried Couple Filers Joint IncomesHeads of Households Taxable Incomes$0 to $47,025$0 to $94,050$0 to $63,000 |
| 15% | Single Filers Taxable IncomesMarried Couple Filers Joint IncomesHeads of Households Taxable Incomes$47,025$94,050$63,000 |
| 20% | Single Filers Taxable IncomesMarried Couple Filers Joint IncomesHeads of Households Taxable Incomes$518,900+$583,750$551,350+ |
By looking at Table 1 & Table 2, you can clearly see how the long-term Capital Gains Tax Rates are lower than ordinary income tax rates. Therefore, if you also want to pay lower taxes for short-term capital gains, make the necessary efforts to hold your investments a little longer.
Wrapping Up
Crypto taxes in the US are a little complicated as they involve ordinary income and capital gains taxes. But, by gaining accurate information about cryptocurrency laws and regulations, you can successfully navigate this world (even cutting some tax rates by adopting strategic measures). However, remember, don’t ever try to play double games in crypto; IRC is keeping a close eye on you all.
With this, we would like to wrap up this blog post. ‘The Blockchainist’ hopes that reading this guide has cleared all your doubts. Stay tuned for more informative blog posts!
