Crypto Tax In USA- Ultimate Tax Guide

January 3, 2025 11:54 am

This ultimate guide offers detailed information on how crypto taxes function in the USA and how to reduce them.

According to a study by Statista, the crypto market is about to reach a whopping 96 million American adults by 2025. That’s a significant chunk of the population diving headfirst into the exciting world of digital assets.

Therefore, the IRS has taken steps to regulate the cryptocurrency transactions across the country. This was done by introducing crypto taxes in the USA. However, navigating these regulations can be daunting for individuals and businesses alike. This guide aims to demystify the complex world of crypto taxes in the USA, providing you with the essential information you need to file your taxes accurately and confidently.

We’ll delve into the IRS’s stance on cryptocurrency, exploring how different crypto activities – from trading and staking to airdrops and DeFi – are classified for tax purposes. We’ll guide you through the intricacies of calculating your capital gains and losses, understanding the tax basis of your crypto holdings, and identifying potential tax deductions and credits. So let’s begin.

Are You Liable To Pay Taxes On Bitcoin In The USA?

Yes, you are required to pay on your crypto profits in the USA. The Internal Revenue Service (IRS) classifies cryptocurrency as property, similar to stocks or bonds, applying crypto taxes. It is responsible for enforcing the tax code, including crypto taxation.

Per the IRS’s guidelines, gains or losses from crypto transactions are generally subject to capital gains taxes. Moreover, you must also pay federal income taxes on crypto transactions that are classified under the federal income tax category by the IRS. The specific crypto tax rate depends on the holding period of the cryptocurrency.

How Much Tax Is Applied To Crypto In The US?

The amount of tax you pay on cryptocurrency in the US depends on your income, the type of transaction, and how long you’ve held the asset. Let’s break it down:

Short-term capital gains and crypto income: If you hold your crypto for less than a year or earn it as income, the tax rate can go as high as 37%, based on your income bracket.
Long-term capital gains: For assets held longer than a year, the tax rate ranges from 0% to 20%, depending on your income level.
NFTs as collectibles: If your NFTs are classified as collectibles, they may be taxed at a flat rate of 28%.

Want to calculate your crypto taxes in the USA? Use our crypto tax calculator.

Can The IRS Track My Crypto Transactions?

Yes, the IRS can track your crypto transactions. If you’re wondering whether your crypto gains, airdrops, or investments are visible to the IRS, the answer is clear: they likely are. Here’s how they track your activities:

KYC Requirements: All major crypto exchanges follow Know Your Customer (KYC) regulations. These checks link your details to your crypto transactions.
Fiat Transactions: When you buy crypto with fiat currencies, your banking information becomes part of the exchange’s records. This data is easily accessible to the IRS.
Withdrawal Tracking: Exchanges keep records of the crypto addresses where you withdraw funds. They can link these addresses to custodial wallets.
Legal Actions Against Exchanges: The IRS has successfully forced exchanges like Coinbase, Kraken, and Poloniex to share customer data through legal battles.
Expert Assistance: With funding from the Inflation Reduction Act, the IRS has hired private crypto experts to enhance their tracking capabilities for the 2024 tax season.
Crypto Tax Evasion Charges: In March 2024, the IRS issued its first charges solely for crypto tax evasion, reinforcing its ability to monitor crypto activities.

Read more about how the IRS can track your crypto transactions here!

How Is Crypto Taxed In The USA?

In the United States, the IRS treats cryptocurrencies like Bitcoin as property for tax purposes. This means the type of tax you owe depends on how you use your crypto, hence, you may be required to pay two different taxes:

1. Federal Income Tax

If you earn cryptocurrency through activities like mining or as payment for services, it’s taxed as income. The value of the crypto at the time you receive it determines how much income tax you owe.

2. Capital Gains Tax

On the other hand, if you sell, trade, or spend cryptocurrency, you may owe Capital Gains Tax. The tax is based on the difference between the price you paid for the crypto (its cost basis) and the amount you sold it for.

In the US, the rate of CGT applied depends on the duration between buying and selling of the crypto. If you sell it within a year of buying the crypto it will be deemed as a short-term gain, while if you sell it after a year of purchase, it is considered as a long-term gain.

As per the IRS, the crypto tax rates on short-term capital gains and cryptocurrency income can reach up to 37%, while long-term capital gains may incur taxes ranging from 0% to 20%.

Let’s understand both types of taxes in detail.

Federal Income Tax On Crypto In The USA

In the US, certain cryptocurrency transactions are considered income and are subject to federal income tax instead of capital gains tax. The IRS treats any activity where you “earn” crypto as taxable income. To determine whether your crypto transactions fall under this category, it’s essential to understand the specific scenarios outlined by the IRS.

Here are the examples of transactions that are classified as income:

Receiving referral bonuses in crypto
Mining crypto as a hobby
Participating in “learn-to-earn” reward programs
Earning staking rewards
Getting paid directly in cryptocurrency
Receiving interest from lending protocols
Collecting GameFi rewards
Earning tokens from providing liquidity or participating in DeFi protocols
Obtaining new coins from a hard fork
Receiving an airdrop
Participating in “watch-to-earn” or “browse-to-earn” programs

Federal Income Tax Rate

For the Tax year 2024 (Tax due in April 2025), the Federal Income Tax rates are as follows:

Tax Rate	Single	Married filing jointly	Married filing separately	Head of Household
10%	$0 to $11,600	$0 to $23,200	$0 to $11,600	$0 to $16,550
12%	$11,600 to $47,150	$23,201 to $94,300	$11,601 to $47,150	$16,551 to $63,100
22%	$47,150 to $100,525	$94,301 to $201,050	$47,151 to $100,525	$63,101 to $100,500
24%	$100,525 to $191,950	$201,051 to $383,900	$100,526 to $191,950	$100,501 to $191,950
32%	$191,950 to $243,725	$383,901 to $487,450	$191,951 to $243,725	$191,951 to $243,700
35%	$243,725 to $609,350	$487,451 to $731,200	$243,726 to $365,600	$243,701 to $609,350
37%	$609,350+	$731,201+	$365,601+	$609,350+

For the tax year 2025 (Tax due in April 2026), the Federal Income Tax rates are as follows:

Tax Rate	Single	Married filing jointly	Married filing separately	Head of Household
10%	$0 to $11,925	$0 to $23,850	$0 to $11,925	$0 – $17,000
12%	$11,925 to $48,475	$23,850 to $96,,950	$11,925 to $48,475	$17,000 to $64,850
22%	$103,350 to $197,300	$96,950 to $206,700	$48,475 to $103,350	$64,850 to $103,350
24%	$197,300 to $250,525	$206,700 to $394,600	$103,350 to $197,300	$103,350 to $197,300
32%	$250,525 to $626,350	$394,600 to $501,050	$197,300 to $250,525	$197,300 to $250,500
35%	$250,525 to $626,350	$501,050 to $751,600	$250,525 to $375,800	$250,500 to $626,350
37%	$626,350+	$751,600+	$375,800+	$626,350+

How To Calculate Federal Income Tax In The USA?

Calculating your Federal income tax on crypto earnings involves determining the fair market value of the cryptocurrency in US dollars on the day you received it. This value represents your taxable income for that transaction. Simply find the market price of the crypto in USD on the date of receipt and use this figure to calculate your tax liability.

Taxable income = Gross total income – (Deductions + Exemptions)

Your Federal Income Tax rate will apply to this amount based on your filing status.

Note: Some states may require you to pay State Income Tax, so consider your location’s tax laws.

Capital Gains Tax On Crypto In The USA

As you know cryptocurrencies are viewed as property by the IRS, i.e., when you dispose of your crypto, you are required to pay Capital Gains Tax on the profit. A disposal transaction occurs in several ways:

Selling crypto for fiat currency (like USD).
Trading crypto for another type of cryptocurrency, including stablecoins and tokens.
Using crypto to purchase goods or services.

Therefore, any profit you make from these transactions is considered a capital gain and is subject to tax in the US.

Capital Gains Tax Rate In The USA

The Capital Gains Tax rate on crypto in the USA depends on two key factors: how long you’ve held the asset and your income level.

If you sell your cryptocurrency after holding it for less than a year, it is taxed at the short-term rate, which aligns with your regular income tax rate.

However, if you’ve held the asset for over a year, it qualifies for the long-term rate, which is typically lower and varies based on your income bracket.

Short-Term Capital Gains Tax Rate

The short-term capital gains tax depends on your usual federal tax bracket. For more details, please check the “Federal Income Tax Rate Table” above.

Long-Term Capital Gains Tax Rate

The long-term capital gains tax rates for the tax year 2024 (tax due in April 2025) are:

Tax Rate	Single	Married filing jointly	Married filing separately	Head of Household
15%	$47,026 to $518,900	$94,051 to $583,750	$47,026 to $291,850	$63,001 to $551,350
20%	$518,901+	$583,751+	$291,851+	$551,351+

How To Calculate Crypto Capital Gains?

To calculate crypto capital gains, follow a simple process. First, determine your cost basis. This includes the purchase price of the crypto and any associated fees, such as transaction costs. If you received the crypto as a gift, use its fair market value in USD on the day you received it as the cost basis.

Next, subtract your cost basis from the sale price of the crypto. The difference is your capital gain or loss. If the result is positive, you have a capital gain. If it’s negative, you have a capital loss.

Capital Gain (Loss) = Value at Disposal – Cost Basis.

If you have a capital gain, you will owe taxes on that amount. If you incur a loss, you won’t owe taxes, but you can use that loss to offset other gains, potentially reducing your overall tax burden.

Accepted Cost Basis Method In The USA

Understanding the cost basis becomes more complex when you handle multiple crypto transactions. For example, if you bought 1 Ethereum (ETH) for $2,000 in 2024 and another for $3,500 later that year, and then sold one for $5,000, your capital gain could differ depending on which purchase you apply. If you use the $2,000 purchase for calculation, your gain is $3,000, but using the $3,500 purchase, your gain is $1,500. The challenge is knowing which to choose when reporting.

This is where cost-basis methods come into play. The good news is the IRS allows different methods to determine cost basis, helping investors decide how to account for their gains or losses.

Here is a list of accepted crypto accounting methods in the USA:

1. Specific Identification (Spec ID):

With Spec ID, you can select the exact crypto asset you want to sell, provided you have accurate records of the transaction. For example, let’s say you bought 2 Bitcoin (BTC) in 2024: 1 BTC for $5,000 in January and another for $10,000 in March. If you decide to sell 1 BTC for $15,000 in December, you can choose whether to use the $5,000 or $10,000 purchase to calculate your capital gains. If you use the $5,000 purchase, your gain is $10,000; if you use the $10,000 purchase, your gain is $5,000.

2. First In First Out (FIFO):

FIFO assumes that the first token you buy is the first asset you sell. If you bought 2 Ethereum (ETH) in 2024—1 ETH for $1,500 in January and another for $2,000 in June—and then sold 1 ETH for $3,000 in December, FIFO would apply the January purchase first. Therefore, your gain would be $1,500 (sale price of $3,000 minus the purchase price of $1,500). FIFO can result in higher capital gains if your older purchases were at a lower price, as it prioritizes the first purchase in your sale.

3. Last In First Out (LIFO):

LIFO assumes that the last token you purchased is the first one you sell. For example, if you bought 1 Litecoin (LTC) for $3,000 in March and another for $4,000 in September, and then sold 1 LTC for $6,000 in December, LIFO would apply the September purchase first. Your capital gain would be $2,000 (sale price of $6,000 minus the $4,000 purchase price). LIFO can be advantageous if your recent purchases were at higher prices, as it allows you to sell those first, potentially reducing your capital gains.

4. Highest In First Out (HIFO):

HIFO allows you to sell the most expensive token first. For instance, if you bought 3 Cardano (ADA) tokens in 2024: 1 ADA for $1.50, another for $2.00, and the third for $2.50, and then sold 1 ADA for $4.00, HIFO would prioritize selling the $2.50 purchase. Your capital gain would be $1.50 (sale price of $4.00 minus the $2.50 purchase price). This method is often used by investors looking to minimize taxable gains by selling the highest-cost assets first.

Note: Starting 2025, the IRS will require wallet-based cost tracking. While you can still use your preferred cost basis method under Spec ID, your transaction records must match this new requirement. If you’re transferring assets between exchanges and wallets frequently, be prepared for significant changes in the 2025 tax year.

Crypto Capital Losses In The USA

Crypto investments don’t always generate profits, and when losses occur, they can be strategically used to minimize taxes. The concept, known as “tax loss harvesting,” allows you to use your crypto losses to reduce your taxable gains.

This process involves pairing long-term losses with long-term gains and short-term losses with short-term gains. By carefully matching these, you can significantly lower your tax liability. After offsetting gains, any leftover losses can be applied to other income.

However, losses from collectible NFTs follow specific rules, so ensure you account for them accurately.

Using Crypto Losses to Offset Stock Market Gains

Crypto losses can be a valuable tool in a bear market. If you’ve experienced gains in the stock market, you can use your crypto losses to offset those gains, reducing the taxes you owe. This cross-market strategy can help you maintain financial balance and lower your overall tax liability during tough market periods.

Reducing Ordinary Income with Crypto Losses

When you don’t have any gains to offset, you can use your crypto losses to decrease your ordinary income. The IRS allows you to deduct up to $3,000 ($1,500 for married couples filing separately) of these losses annually. Any unused losses can be carried forward into future tax years, ensuring they don’t go to waste. This approach helps manage financial setbacks while planning for the long term.

Saving Losses for Future Gains

For investors with a forward-looking strategy, carrying losses into future years might be a smart choice. If you anticipate significant gains later, you can use this year’s losses to offset those gains, reducing future tax bills. This option allows you to optimize your tax strategy and manage profits efficiently over time.

The IRS has issued new guidance for taxpayers holding crypto assets valued at less than $0.01—and it’s not great news if you’re stuck with tokens like UST that have become nearly worthless. According to the IRS, you can’t claim a loss deduction for crypto assets that have dropped below $0.01. Even if the assets are considered “worthless or abandoned,” they won’t qualify for a loss unless they are sold or disposed of.

Crypto Tax Breaks In The USA

Crypto investors in the USA can take advantage of certain tax breaks that help reduce their tax burden. Here are some of the key tax breaks available to crypto holders:

Gifting Crypto Under $18,000

In 2024, you can gift up to $18,000 in crypto to any individual without incurring taxes. This falls under the annual gift tax exclusion. It allows you to reduce your taxable income by shifting assets to others. If you exceed this amount, but stay below the lifetime gift tax exemption of $13.61 million, you won’t face any gift tax.

However, you’ll need to file Form 709 to report the gift. For 2025, the annual exclusion increases to $19,000, and the lifetime exemption rises to $13.99 million, offering even more room for tax-free gifting.

Capital Gains Tax-Free Allowance

For those earning less than $47,026 in total income, including crypto gains, you won’t owe any capital gains tax on long-term crypto profits in 2024. This tax-free threshold will increase to $48,350 in 2025. Even if your total income stays under this threshold, it’s important to report all crypto transactions to the IRS. Failing to do so could result in penalties or complications down the line.

Long-Term Capital Gains Tax Rate

Holding crypto for more than a year can offer a significant tax advantage. If you qualify for long-term capital gains, your tax rate will range from 0% to 20%, depending on your overall income. This is a far more favorable tax rate compared to short-term capital gains, which are taxed as ordinary income. Holding crypto long-term can help reduce your tax liability while you wait for the value of your investments to grow.

How Are Lost Or Theft Crypto Taxed In The USA?

In the United States, the IRS does not permit crypto investors to claim lost or stolen cryptocurrency as a deductible loss on their taxes. Whether your crypto is lost due to a hack, scam, or misplaced private keys, it cannot be treated as a capital loss. This rule leaves no room for recovery through tax filings if your digital assets disappear.

Before the Tax Cuts and Jobs Act came into effect in 2018, taxpayers had the option to claim theft and casualty losses for crypto. However, this option only applied to losses incurred before 2017. If you experienced a loss during that time, you might still be able to claim it—provided you can prove ownership of the assets and supply documentation, such as receipts or statements from an exchange, detailing the extent of the loss.

For current tax years, the IRS expects you to disregard lost or stolen crypto entirely in your calculations. Whether it’s a scam or a forgotten private key, there is no tax relief. The best course of action is to stay vigilant about securing your assets and consider it a personal loss if they’re unrecoverable.

How Are Different Crypto Transactions Taxed In The USA?

Now that you have understood the different types of taxes applied to crypto in the USA, let’s check different crypto transactions and their taxations.

Buying Crypto With Fiat Currency

When you buy crypto with fiat currency, such as USD, in the US, you don’t face any immediate taxes. The IRS does not tax you at the time of purchasing cryptocurrency.

However, you must keep detailed records of your transactions. Tracking your purchases is crucial for calculating your capital gains or losses when you later sell or exchange your crypto. These records help determine your cost basis, which is essential for accurate tax reporting.

Buying Crypto With Stablecoins

When you buy cryptocurrency with stablecoins, the IRS treats the transaction similarly to swapping one cryptocurrency for another. This means any gain you make could be subject to Capital Gains Tax. However, you may not always owe taxes on the transaction. Since stablecoins are usually pegged to a reserve asset like the US dollar, your cost base (what you paid for the stablecoin) and the disposal value (what you spent on the crypto) may be almost the same. In such cases, the transaction could result in no taxable gain.

HODLing Cryptocurrency

If you’re holding onto your cryptocurrency and not making any transactions, you won’t have to pay taxes on it. The IRS does not tax unrealized gains, meaning if the value of your crypto increases while you hold it, there is no immediate tax obligation. Taxes come into play when you sell, trade, or spend your cryptocurrency. This means as long as you’re just holding it, you don’t need to worry about paying taxes on any price appreciation.

Selling Cryptocurrency For Fiat

Selling cryptocurrency for fiat currency, such as USD, is considered a taxable event by the IRS. If you sell your crypto asset within a year of purchasing it, you will incur short-term capital gains tax. This tax is taxed at the same rate as your income tax rate.

On the other hand, if you hold your crypto asset for more than a year before selling, you will pay long-term capital gains tax. The tax rate for long-term capital gains depends on your overall income. Rates range from 0% to 20%, depending on your income level.

Swapping Cryptocurrency

When you swap one cryptocurrency for another, such as trading Bitcoin (BTC) for Ethereum (ETH), it triggers a taxable event in the USA. The IRS treats this as two separate transactions, even though no fiat currency is involved.

In this example, when you trade BTC for ETH, the IRS views it as if you’re selling your BTC. The transaction is considered complete when you exchange BTC for ETH at the market value. Although you don’t receive traditional currency, you must pay taxes on the BTC sale, not the ETH purchase.

To determine the capital gain, you calculate the difference between the cost basis of your BTC and its fair market value on the day of the swap. If you later sell the ETH, your cost basis will be the value of ETH at the time of the trade.

Spending Crypto For Purchase Of Goods Or Services

When you use cryptocurrency to buy goods or services, you trigger a taxable event under US tax law. The IRS treats these transactions as taxable, and any gains or losses from the sale of crypto during the purchase process are subject to Capital Gains Tax. This means that when you spend crypto, you must calculate whether the value of the asset has increased or decreased since you acquired it.

If the crypto’s value has risen, you’ll owe taxes on the capital gains. Conversely, if the value has decreased, you may be able to claim a capital loss.

Moving Crypto Between Own Wallet

Moving cryptocurrency between your wallets does not trigger a taxable event. Since both wallets belong to you, the IRS does not require you to report these transfers. You do not need to record or track them for tax purposes.

This rule applies whether you are transferring crypto between wallets on the same exchange or between different wallets you control. As long as you are not selling, exchanging, or converting the crypto into fiat or another asset, the transfer remains tax-free.

Receiving Cryptocurrency As Salary

When you receive cryptocurrency as a salary, it is taxable as income on the day you receive it. The IRS treats cryptocurrency as property, meaning the value of the cryptocurrency on the date of receipt is what determines the taxable amount. This value must be reported as part of your total income for the year.

For example, if you receive Bitcoin as a salary, and its value is $30,000 on the day you receive it, that amount will be included in your income. You’ll need to report it on your tax return, just like any other form of compensation, whether you hold or sell the crypto later.

Receiving Cryptocurrency As Payment For Goods and Services

When you receive cryptocurrency as payment for goods or services, the IRS considers it taxable as income. The amount you report is based on the fair market value (FMV) of the cryptocurrency at the time you receive it.

Your cost basis, which is the amount you paid for the crypto, will be the FMV on the day of receipt. This means if the crypto’s value changes after you receive it, you will owe taxes based on its value when you received it, not when you sell or use it.

Mining Crypto

When you mine cryptocurrency, the IRS considers it taxable income. You must pay income tax on the fair market value of the crypto you receive on the day you mine it. If you’re mining as a business, you will also need to pay self-employment tax, which covers your Medicare and Social Security contributions.

If you later sell, trade, or spend the mined crypto, you will pay capital gains tax. This applies to any profit you make from those transactions.

Note: President Biden’s proposed fiscal budget for 2025 includes a potential excise tax on crypto mining. Although it’s not currently in effect, it has been part of previous budgets. We’ll continue to monitor this development and update you with any changes.

Crypto Airdrop

In the United States, the IRS treats crypto airdrops as taxable income. When you receive an airdrop, you’ll need to pay Income Tax based on the fair market value of the crypto on the day you receive it. The amount you owe depends on your income tax rate.

If you decide to sell or trade the airdropped crypto in the future, you’ll face Capital Gains Tax. This applies because airdropped tokens are treated the same as other cryptocurrencies when it comes to taxation. The amount of tax you pay will depend on the difference between the fair market value when you receive the crypto and the price you sell it for.

The cost basis for your airdropped crypto is the fair market value on the day you receive it. This figure helps determine your gain or loss when you eventually sell or trade the asset.

Soft Fork

A soft fork in cryptocurrency does not trigger any tax obligations. This is because a soft fork does not result in you receiving any new coins or tokens. Essentially, it is a network upgrade or protocol change that is backward-compatible, meaning your existing cryptocurrency remains unchanged. Since there is no new income generated from the soft fork, there is no taxable event.

Hard Fork

When a hard fork occurs, and new cryptocurrency is created, the IRS considers this as taxable income. If you receive cryptocurrency as a result of an airdrop from the hard fork, you must report the fair market value of the coins in US dollars on the date you receive them. This is subject to Income Tax.

Additionally, if you later sell or dispose of the newly received cryptocurrency, you will be liable for Capital Gains Tax on any profit made. This tax applies to the difference between the selling price and the value of the cryptocurrency when you first receive it.

Gifting Cryptocurrency

In the United States, taxpayers can take advantage of an $18,000 gift tax exclusion for 2024. This limit applies per person, meaning you can give multiple gifts, including crypto, up to that value to different individuals. If you gift more than $18,000 in total, the excess amount may be subject to a gift tax of up to 40%, but only if you’ve already surpassed the lifetime exclusion amount, which is $13.61 million for 2024.

It’s important to note that gifting cryptocurrency is considered a “non-recognition” event for Capital Gains Tax purposes. This means you don’t have to pay capital gains tax when giving crypto as a gift.

However, if your gifts exceed the annual limit, you may need to file Form 709 to report the excess amount. In 2025, the gift tax exclusion limit will increase to $19,000, and the lifetime exclusion will rise to $13.99 million.

Receiving Cryptocurrency As a Gift

When you receive cryptocurrency as a gift, you generally won’t have to pay taxes on it. The person giving you the crypto is the one responsible for any potential tax liabilities. However, the recipient of the crypto will inherit the cost basis of the asset. This means the original purchase price of the crypto becomes your starting point for calculating taxes in the future.

If you don’t know the cost basis, it will be set at the fair market value on the day you receive the crypto. This information is essential for determining any capital gains taxes when you sell, trade, or spend the cryptocurrency in the future.

If you eventually dispose of the cryptocurrency by selling or using it, you’ll need to pay capital gains tax based on any price increase from the original cost basis. This tax is calculated on the profit you make from the transaction.

Donating Cryptocurrency

When you donate cryptocurrency to a registered charity, you won’t have to pay capital gains tax. The IRS does not consider your donation as a sale, so you do not realize any capital gain or loss. As a result, you avoid paying taxes on any appreciation in the crypto’s value.

You can claim a tax deduction for your charitable contribution. The amount you can deduct is based on the fair market value of the crypto at the time you donate it. However, to claim this deduction on your federal taxes, ensure that the charity has 501(c)(3) status. You can verify this status through the IRS’s exempt organization database. If your donation exceeds $500, you must complete Form 8283 when filing your taxes.

Donations Over $5,000

For donations over $5,000, you will need to obtain a qualified appraisal to apply the deduction. This ensures the value of the donation is accurate for tax purposes. It’s important to note that cryptocurrency donations are classified as non-cash donations, so they do not receive the same tax benefits as cash donations.

Cash vs. Crypto Donations

For cash donations, you can generally deduct up to 60% of your adjusted gross income (AGI). If you donate property, including crypto, the deduction is between 20% and 50% of your AGI, depending on the organization. The tax benefits for non-cash donations, including cryptocurrencies like stablecoins, differ from those for cash donations.

Profit/Income From Dealing In Crypto Derivatives

When you profit from dealing in crypto derivatives, the IRS typically treats this as a capital gain. This means that any gains you make from trading or selling crypto derivatives are subject to taxation based on the holding period of the assets. If you hold the derivatives for over a year before selling, you may qualify for long-term capital gains tax rates, which are often lower than short-term rates.

Bitcoin Casino

When it comes to crypto gambling, the tax situation is a bit murky. While there is no specific guidance for how Bitcoin or crypto gambling is taxed, it is generally treated like traditional gambling winnings. If you win money at a Bitcoin casino, those winnings are subject to both Federal and State Income Tax in the U.S.

The IRS treats cryptocurrency as property, which means that any gains, including those from gambling, are taxable. If you win using Bitcoin at a casino, the value of your winnings at the time of the transaction will be considered taxable income.

In addition to Federal taxes, many states also impose their taxes on gambling winnings, including those from online Bitcoin casinos. The state tax rates vary, so you will need to check your state’s specific regulations.

Margin, CFDs, and Future Trading

When it comes to margin trading, CFDs, and futures, US crypto investors need to understand the tax implications. The IRS treats profits from these trades as taxable income under Capital Gains Tax, which applies to both short-term and long-term gains. You won’t owe any taxes when you open a position. The tax obligation arises when you close a trade, realizing a gain or loss.

These transactions are subject to the same Capital Gains Tax rates that apply to other investments, such as stocks and bonds. If you hold the position for less than a year, you’ll face short-term capital gains taxes. However, if you hold it for over a year, the tax rate will be lower, falling under long-term capital gains tax rates.

Crypto Futures and the IRS 60/40 Rule

For those trading crypto futures, there’s a more favorable tax treatment if the futures are regulated. Under the IRS 60/40 rule, 60% of the capital gains are taxed at long-term rates, while 40% are taxed at short-term rates, regardless of how long the position is held. This can be a huge advantage for traders who focus on regulated crypto futures products.

However, many crypto futures products remain unregulated, and the 60/40 rule does not apply to them. It’s important to consider this when choosing which futures to trade. If your collateral is liquidated, the IRS considers this a disposal of assets. This means you must report it on your tax returns. Even if you didn’t voluntarily close the position, you still need to declare any gains or losses from the liquidation.

How Are NFTs Taxed In The USA?

NFTs are subject to taxation, but the way they are taxed depends on whether they are classified as collectibles or not. Previously, NFTs were treated like other cryptocurrency assets. When you sold or traded an NFT, it would trigger a Capital Gains Tax, either short-term or long-term, depending on how long you held the asset. However, recent updates to tax guidelines have introduced additional complexities.

New NFT Guidelines

Under the new tax guidance, the IRS may classify certain NFTs as collectibles. This change means that NFTs deemed collectibles will be taxed at a higher rate.

Specifically, the long-term Capital Gains Tax on collectibles is 28%, while for other capital assets, the maximum rate is 20%. So, if you sell an NFT you’ve held for more than a year and it’s classified as a collectible, you’ll pay a 28% tax on any gain from the sale.

Look-Through Analysis for NFTs

Not all NFTs are automatically deemed collectibles. To determine whether an NFT qualifies, the IRS uses a “look-through analysis.” This means the IRS looks at the underlying asset represented by the NFT to decide if it meets the definition of a collectible. It has defined certain assets as collectibles for tax purposes. These include:

Any work of art
Rugs or antiques
Metals or gems (with limited exceptions)
Stamps or coins (with limited exceptions)
Alcoholic beverages
Any other tangible personal property considered a collectible

If your NFT is associated with one of these assets, it may fall under the definition of a collectible, and you will be taxed accordingly.

Taxes On Different NFT Transactions

Here is how different NFT transactions are taxed in the US:

Buying NFTs With Fiat Currency

When you buy NFTs using fiat currency, there is no direct tax applied to the transaction itself. Purchasing an NFT with dollars or any other traditional currency doesn’t trigger any tax obligations. However, it’s important to remember that this could change depending on your future actions.

Buying NFTs With Cryptocurrency

When you buy an NFT using cryptocurrency, the IRS considers it a taxable event. This is because the transaction involves swapping one type of crypto for another, which is viewed as a “crypto-to-crypto trade.” Since the IRS treats NFTs as property, you trigger capital gains tax on any gains made from the crypto you used to buy the NFT.

Selling & Trading NFTs

When you sell or trade NFTs, the IRS treats the transaction as a taxable event. Generally, profits are subject to capital gains tax. If you sell an NFT for more than you bought it, you must report the gain on your tax return.

The tax rate depends on how long you hold the NFT. If you hold it for over a year, the gain is considered long-term and taxed at a lower rate. However, if you sold it within a year, the IRS will tax it as short-term capital gains, which aligns with your ordinary income tax rate.

Additionally, NFTs may be classified as collectibles, which means they could be taxed at a higher rate of up to 28%.

Minting/Creating NFTs

Minting or creating NFTs (Non-Fungible Tokens) does not directly trigger a tax event. When you create an NFT, you are not required to pay taxes just for the minting process. However, the costs associated with minting, such as transaction fees or gas fees, may be added to your cost basis. This could be useful when you later sell the NFT, as these costs can potentially lower your taxable gain.

Selling NFTs as a Creator

When you sell NFTs as a creator, the profits you earn are subject to income tax. The IRS treats income from NFT sales as ordinary income, meaning you must report the sale as part of your taxable income for the year. This applies whether you sell directly or through an online marketplace.

How Are DeFi Transactions Taxed In The USA?

DeFi, or decentralized finance, is still an emerging field in the world of cryptocurrency. As it continues to evolve, new profit opportunities are opening up for investors. The IRS has not issued specific guidelines on how DeFi activities should be treated for tax purposes, which leaves a lot of ambiguity for investors.

Hold on—this doesn’t mean you’re off the hook for taxes on your DeFi transactions. You’ll still owe either no tax, Income Tax, or Capital Gains Tax on your DeFi transactions. The type of tax depends on whether your activities are classified as ‘earning’ or ‘disposing’ of cryptocurrency under current guidance.

If you’re earning crypto—such as receiving new coins or tokens through staking, farming, or other activities—it falls under Income Tax. On the other hand, actions like trading, selling, or spending tokens on DeFi platforms are considered disposals and are subject to Capital Gains Tax.

Taxes On Different DeFi Transactions

Here is how different DeFi transactions are taxed in the USA:

Earning Interest from DeFi Protocols

If you earn new tokens through DeFi protocols, you’ll likely face Income Tax on those earnings. However, if you receive liquidity provider (LP) tokens, which may increase in value, the IRS could treat this as a Capital Gains Tax event. The tax rate will depend on the holding period of the LP tokens before you sell or dispose of them.

Borrowing from DeFi Protocols

When you borrow funds from a DeFi protocol, the IRS may impose Capital Gains Tax. This occurs when you provide collateral to receive tokens. The value of the tokens you receive could be considered a taxable event, depending on the difference between the token’s value at the time of borrowing and when you later sell or trade them.

Paying Interest in DeFi Protocols

If you pay interest in a DeFi protocol, you won’t owe taxes unless you’re paying in crypto. If you are paying in crypto, this could trigger Capital Gains Tax, as the crypto you use to pay interest may have appreciated. In some cases, if the crypto is borrowed for investment purposes, you may also be able to deduct the interest as an investment expense.

Staking Cryptocurrency

Starting July 31, 2023, the IRS updated its guidelines, stating that staking rewards are taxable as income when received. This means that once you receive your staking rewards, they are subject to Income Tax. The tax is based on the fair market value in USD at the time of receipt.

The phrase “when received” is important, especially for Ethereum (ETH) stakers. It refers to when you gain “dominion and control” over the assets, which happens when the rewards are unlocked and you can sell them.

Additionally, if you decide to sell, swap, or use your staking rewards, you will incur Capital Gains Tax on any profit made.

Yield Farming DeFi Protocols

Yield farming is another common DeFi activity, and the tax implications are similar to staking. If you receive new tokens as a result of yield farming, you will likely need to pay Income Tax on those earnings. But if you earn LP tokens that appreciate over time, you could be subject to Capital Gains Tax when you dispose of them.

Wrapping Tokens

Wrapping tokens is often seen as a taxable event by the IRS. When you convert one cryptocurrency, like ETH, into a wrapped version such as WETH, it could be considered as selling the original token (ETH) and buying a new one (WETH).

Since crypto-to-crypto transactions are taxable according to IRS guidelines, this conversion may trigger capital gains or losses. The amount of gain or loss depends on the difference between the original token’s cost basis and its market value at the time of the conversion.

There is another perspective that suggests wrapping tokens doesn’t trigger a taxable event. Supporters of this view argue that there is no real market price difference between wrapped tokens and their unwrapped counterparts. They believe the wrapping process doesn’t qualify as a sale, as the token’s underlying value remains the same.

Earning Liquidity Tokens from DeFi Protocols

The tax treatment for earning liquidity tokens depends on whether you receive new tokens or LP tokens. If you receive new tokens, you’ll generally owe Income Tax. On the other hand, if you receive LP tokens that increase in value, the IRS may treat this as a Capital Gains Tax event.

Adding and Removing Liquidity from Liquidity Pools

When you add liquidity to a DeFi pool, you may receive LP tokens in return. If you later sell or trade those LP tokens, Capital Gains Tax could apply based on the appreciation in their value. Similarly, when you remove liquidity from a pool and receive LP tokens, Capital Gains Tax may apply if the value of those tokens has increased.

Earning through Play-to-Earn or Engage-to-Earn Protocols

Some DeFi protocols reward users for engaging in activities like gaming or participating in community-driven projects. Any earnings from these activities will likely be subject to Income Tax, as they are considered new tokens earned by your participation.

Profits from DeFi Margin Trading and Options Protocols

If you profit from margin trading or options in DeFi protocols, the IRS will treat those profits as Capital Gains. The tax rate will depend on the time you held the assets before making a profit, with long-term capital gains rates applying if the holding period exceeds one year.

The IRS has proposed new guidance that could expand the definition of crypto brokers to include decentralized exchanges. If implemented, DeFi platforms would be required to gather customer data and issue the new Form 1099-DA to both users and the IRS to report crypto transactions. While this rule is not yet in effect, it is expected to be introduced by the 2025 financial year if approved.

Decentralized Autonomous Organization (DAO) Taxes In The USA

Decentralized Autonomous Organizations (DAOs) are reshaping the way organizations operate. These entities function as member-owned communities with no central leadership, allowing token holders to make decisions collectively. Unlike traditional companies where a board of directors governs, DAOs empower their members to vote on key issues such as operational strategies, allocation of funds, and feature development.

For example, Uniswap, a popular decentralized protocol, enables holders of its UNI tokens to influence decisions like transaction fee usage or protocol updates. This innovative structure provides members with financial opportunities, including profit-sharing or the ability to sell tokens to investors.

Taxation Challenges for DAOs

The IRS has yet to provide specific tax guidelines for DAOs. Without a registered legal entity or centralized control, a DAO cannot directly pay taxes. Instead, its income is typically treated like that of a flow-through entity, where profits pass to members and are taxed at the individual level. Any income members receive from the DAO would likely be subject to Income Tax. Additionally, selling DAO tokens that have increased in value since acquisition may incur capital gains taxes.

Legal Recognition and State-Level Implications

While federal tax guidelines remain unclear, Wyoming has recognized DAOs as a form of Limited Liability Corporation (DAO LLC). This legal acknowledgement is a significant step toward defining how DAOs should be classified and taxed. Understanding federal and state-level interpretations is crucial for members to manage their tax obligations effectively.

When To File Your Cryptocurrency Taxes In The USA?

In the USA, the deadline to file your cryptocurrency taxes is April 15, 2025, for the 2024 tax year. The tax year runs from January 1 to December 31. This means you need to report all your crypto gains, losses, and transactions that occurred during 2024 by April 15, 2025.

If you’re a US expat, you get an extended deadline. You have until June 15, 2025, to file your taxes. This extension is available automatically for US citizens living abroad.

For those who need more time, you can apply for an extension by filing Form 4868 or using Free File. If granted, your new deadline will be October 15, 2025. Remember, this is an extension for filing, not for paying. Any taxes owed are still due by the original April deadline.

How To File Your Cryptocurrency Taxes In The USA?

To report crypto taxes in the US, you need to follow the following steps:

Gather Transaction Records

It’s essential to keep detailed records of all your crypto transactions. The IRS requires taxpayers to maintain sufficient records to support their tax return positions. To stay compliant, ensure you document the following details for every crypto transaction:

The date of the transaction.
The fair market value of the crypto in USD on the acquisition date.
The fair market value of the crypto in USD on the disposal date.
The capital gain or loss from each transaction.
The purpose of the transaction and the parties involved.
Receipts from purchases and sales.
Records of transfers and transactions from all your wallets and exchanges.

Crypto accounting platforms like KoinX can help you provide all these records in a compiled statement.

Calculate Your Crypto Taxes

When calculating your crypto taxes, start by identifying which activities are taxable. Determine if your crypto transactions are considered income or capital gains.

Next, calculate your profits, losses, and any income you earned from crypto. Keep track of all transactions throughout the year, noting whether they fall under income or capital gains tax categories.

To calculate manually:

List all taxable crypto transactions.
Identify if they are income or capital gains.
Find the original cost of each transaction (cost basis).
Determine your total gains, losses, and income.
Report everything to the IRS.

For many, calculating taxes manually can feel overwhelming. If you prefer an easier route, consider using a crypto tax calculator like KoinX to streamline the process.

Choose A Filing Method

When it comes to filing your taxes, you have two main options: e-filing and paper forms.

E-Filing: This method allows you to file your taxes online using tax preparation software. It’s fast, accurate, and typically results in quicker refunds. Many tax software programs are available, and if you meet certain income requirements, you can use the IRS Free File program to file at no cost.
Paper Forms: If you prefer to handle your taxes manually, you can fill out IRS Form 1040 by hand and mail it to the IRS. This method is less common today but still an option. Keep in mind that paper filings usually take longer to process, which may delay any refunds.

Understand Which Form To File

When filing taxes for your cryptocurrency transactions, it’s essential to use the correct forms to report your gains, losses, and other crypto-related income.

Form 8949: This form is used to report both short-term and long-term capital gains or losses from cryptocurrency transactions. It’s important to detail each transaction here.
Schedule D (Form 1040): This form summarizes your total capital gains and losses, including those from crypto, and is carried over to your Form 1040. It provides an overall picture of your tax situation.
Schedule C (Form 1040): If you have self-employment income, such as from crypto mining, staking, or rewards programs, you’ll need to file Schedule C. This reports any income earned in these activities.
Schedule 1 (Form 1040): This form is for reporting other types of income that don’t qualify as self-employment income, such as crypto-related income from airdrops or interest.

Forms For Crypto Service Providers:

Crypto service providers must issue specific forms for tax reporting purposes. These forms help ensure compliance with IRS regulations and report various types of crypto-related income.

Form 1099-MISC: This form reports ordinary income, such as crypto earnings from staking, mining, airdrops, referral bonuses, and yield generation. If you’ve earned $600 or more in crypto this year, the service provider will likely issue a 1099-MISC. This form ensures that crypto income gets taxed according to your income tax bracket.
Form 1099-B: This form reports the sale or disposal of capital assets, like cryptocurrencies, to the IRS. While traditional financial brokers use this form to report asset transactions, crypto exchanges have not been required to do so in the past. However, as tax laws evolve, this requirement may expand to include crypto exchanges in the future.

Note: The IRS has issued a reminder that all taxpayers must answer the digital asset question when filing their tax returns. This question is now included on Forms 1040, 1040-SR, and 1040-NR, as well as on Forms 1041, 1065, 1120, and 1120-S.

The question varies slightly by form but generally asks: “At any time during 2023, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

Even if a taxpayer hasn’t engaged in any crypto-related activities, they are still required to provide an answer.

File Your Taxes

Submit your completed tax return, including Form 8949, Schedule D, and any applicable forms for crypto income, along with your tax payments.

How Can You Save Crypto Taxes In The USA?

While there is no way to avoid paying crypto taxes in the USA on the gains, there are several strategies that you can use to reduce your tax liability.

HODL Method

One of the simplest and most effective ways to reduce crypto taxes is simply holding onto your cryptocurrency for the long term. This is because cryptocurrency is taxed as a capital asset, and capital gains taxes are lower for assets held for more than a year.

For example, in the US, the long-term capital gains tax rate is 15%, while the short-term capital gains tax rate is up to 37%.

Tax Loss Harvesting

Tax loss harvesting is a strategy that involves selling cryptocurrency that has lost value to offset capital gains from cryptocurrency that has increased in value. This can be a great way to reduce your tax liability, especially if you have a lot of unrealized losses in your crypto portfolio.

Use Tax Deductions

There are several tax deductions that you can take to reduce your crypto tax liability. For example, if you donate cryptocurrency to a qualified charity, you can deduct the cryptocurrency’s fair market value at the time of the donation. You can also deduct the cost of any expenses that you incurred while mining or trading cryptocurrency.

Invest in IRAs

An Individual Retirement Account (IRA) is a tax-advantaged retirement savings account. You can invest in various assets in an IRA, including cryptocurrency. Your contributions to an IRA are tax-deductible, and your gains will grow tax-deferred until you withdraw them in retirement.

Utilize CGT Allowance

If you’re a single taxpayer in the United States, you may not have to pay Capital Gains Tax (CGT) if your annual earnings are below a certain threshold.

For 2024, the CGT allowance for singles is set at $47,026. This means if your income is under this amount, you won’t owe any tax on your capital gains.

The threshold is slightly higher in 2025, rising to $48,350.

Gift or Donate Cryptocurrency

Gifting cryptocurrency can be a great way to transfer wealth without triggering taxes, as long as the gift value is under $18,000 (for 2024). This amount is covered by the annual gift tax exemption, meaning you won’t have to pay any gift tax. If you’re planning for 2025, the exemption increases to $19,000. You can also use crypto gifting to benefit those with lower incomes in your household, which can lower the total tax burden for everyone.

Donating cryptocurrency to charity offers tax benefits as well. Donations are tax-deductible, but there are certain conditions. The charity must be a qualified 501(c)(3) organization to allow for deductions. You can check the charity’s status using the IRS’s exempt organization database. If your donation exceeds $500, you’ll need to file Form 8283 along with your annual tax return. For donations over $5,000, a qualified appraisal is required to apply for the deduction.

Invest in Opportunity Zone Funds

You can reduce your tax bill by investing in opportunity zone funds. These investments not only help communities but also offer tax benefits. If you hold your investment for over five years, you could lower your taxes by as much as 10%. This strategy works well for long-term investors looking to save on taxes while supporting local development.

Choose the Right Cost Basis Method

The method you use to calculate the cost basis can significantly affect your tax obligations. Methods like FIFO (First In, First Out), LIFO (Last In, First Out), HIFO (Highest In, First Out), and Specific Identification (Spec ID) each have different tax impacts. Select the method that best fits your investment strategy to minimize your tax liability.

Look Out For IRS Warning Letters

The IRS has confirmed an increase in issuing letters to crypto investors suspected of underreporting, evading taxes, or having outstanding tax obligations. These letters may be categorized as 6173, 6174, or 6174-A.

Letters 6174 and 6174-A serve as ‘no action’ warnings and are deemed ‘educational.’ They aim to remind taxpayers of their responsibility to report and file taxes on cryptocurrency transactions accurately. No further action is required if taxpayers have appropriately fulfilled their tax obligations.

On the other hand, Letter 6173 demands a response. Please reply to this letter to avoid an IRS audit of the taxpayer’s tax account.

Intentional underreporting of crypto investments may result in fines starting from $25,000, and in severe cases, individuals may face criminal charges with penalties of up to 5 years in prison. Crypto investors must address these letters promptly and comply with tax regulations to avoid legal consequences.

How Can KoinX Help With Crypto Taxes In the USA?

Crypto tax season can be overwhelming for investors. With the ever-changing regulations and numerous transactions spread across various platforms, calculating taxes manually can quickly become a complex and time-consuming task. Missing or miscalculating any detail can lead to costly mistakes, especially when dealing with capital gains, income, and losses. This is where KoinX steps in to simplify the entire process.

Streamlined Transaction Management

KoinX removes the hassle of tracking every crypto transaction. The platform allows you to import your transaction history from a wide range of exchanges and wallets automatically. This saves you hours of manual data entry and eliminates human errors, giving you a clearer, more accurate overview of your trading activity.

Automated Tax Calculations

KoinX excels at automating crypto tax calculations. The platform applies industry-standard accounting methods to your transaction history to calculate capital gains and losses. Instead of manually calculating each transaction, KoinX handles the numbers for you, ensuring precision. This automation lets you focus more on your investments and less on tax details.

Multiple Platform Compatibility

Whether you use popular exchanges or niche platforms, KoinX integrates with a variety of exchanges and wallets. This compatibility ensures that no transaction is overlooked. By consolidating all your data into one platform, KoinX helps you maintain a complete record of your crypto activity, essential for accurate tax reporting.

Simple Tax Reporting

With KoinX, generating your tax report is a breeze. Once you’ve imported and reviewed your transactions, you can generate detailed reports ready to be shared with your tax advisor or accountant. The platform breaks down your crypto activity in a clear, organized manner, ensuring you meet all tax requirements effortlessly.

Security You Can Trust

KoinX prioritizes the safety of your data. The platform uses advanced encryption techniques to secure your transaction history and personal information. You can trust that your sensitive data remains protected from potential threats, ensuring peace of mind as you file your taxes.

Easy Setup Process

Getting started with KoinX is straightforward. After creating a free account, you can easily integrate your exchanges and wallets. Once your transactions are imported, simply review them, generate tax reports, and you’ll be ready to file with confidence.

So don’t let crypto tax calculations overwhelm you. Let KoinX automate your crypto tax calculations and reporting. Sign up today and experience the ease of managing your taxes with one trusted platform.

Conclusion

Navigating the crypto tax landscape in the USA can be a complex endeavor, but staying informed and compliant with the IRS’s evolving guidelines is crucial. By understanding the tax implications of various crypto transactions, including capital gains, ordinary income, and staking rewards, you can effectively manage your crypto tax obligations and minimize your tax burden.

However, the manual calculation of crypto taxes in the USA can be complex. Therefore, you can use automatic crypto tax calculators like KoinX. It will save you time and effort in tax calculation and provide accurate tax reports based on the nature of the transactions. So join KoinX today and make your taxes on crypto easier than before.

Frequently Asked Questions

What Are The Penalties For Failing To Report Cryptocurrency Taxes In The USA?

If you fail to report your cryptocurrency taxes, you may face significant penalties. Tax evasion and fraud are considered federal offenses in the US. Penalties can include hefty fines, which may reach up to $100,000. In more severe cases, individuals could face up to five years in prison. It’s crucial to stay compliant with tax reporting to avoid these serious consequences.

What Are The Tax Implications Of Using Cryptocurrency To Purchase Goods Or Services?

The transaction is taxable when you use cryptocurrency to purchase goods or services. The gain or loss from the transaction is calculated based on the cryptocurrency’s fair market value at the time of purchase or sale.

How Do I Record My Cryptocurrency Transactions For Tax Purposes?

Maintaining accurate records of your cryptocurrency transactions is essential for tax compliance. Cryptocurrency tax software like KoinX can help you track transactions and calculate tax liability.

Do You Need To Pay Taxes On Cryptocurrency Losses?

No, there is no obligation to pay taxes on crypto losses. In fact, from a taxation standpoint, experiencing losses can be advantageous, as they can be used to offset gains, thereby lowering your total tax liability.