2024 Crypto Taxes in the USA — What Do I Need To Know?

The most popular feature of cryptocurrency is its anonymity. It is a decentralized form of currency, meaning that any central authority does not control it. But if it was designed to be a currency, why do we need to pay tax on crypto transactions? Well, that’s because the Internal Revenue Service issued Notice 2014-21 in 2014 that stated cryptocurrency is considered “property” and not currency.

Crypto as a Property

Fundamentally, digital currencies like Bitcoin and Ethereum are subject to capital gains taxes when you trade crypto, much like stocks or bonds. However, crypto transactions do not always fit neatly into the category of investments. Certain crypto activities are sometimes classified as ordinary income and may incur income tax obligations.

Still, not all cryptocurrency transactions are taxable. Non-taxable crypto transactions include: 

• Buying crypto with fiat currency.
• Moving cryptocurrency from one wallet to another that you control.
• Giving cryptocurrency to an organization that doesn’t charge taxes.

Taxable crypto transactions include: 

• Selling crypto for fiat currencies such as the Euro and US and Canadian dollars.
• Exchanging one cryptocurrency for another, such as Bitcoin for Ethereum and Ethereum for Cardano.
• Purchasing goods or services with cryptocurrency.
• Earning crypto through mining.

What Tax Rate Will I Pay on Cryptocurrency?

The tax rate for cryptocurrencies varies based on several criteria, including how you obtained it, your income level, and the length of time you kept it.

If you are like the majority of investors, you have most likely only purchased, sold, and exchanged cryptocurrencies through a cryptocurrency exchange. This is classified as capital gains and is reported as such. Depending on how long you held it, they can be taxed as long-term capital gains or short-term capital gains.

On the other hand, if you obtain cryptocurrency through work, mining, staking, or interest incentives, such income is normally recognized as ordinary and reported as such.

Ordinary Income Tax

Getting paid in cryptocurrency — through a job, mining, staking rewards, or free coins (airdrops) — counts as regular taxable income. Based on your total tax bracket, this income could be taxed from 10% to 37%.

When Is Crypto Subject to Income Taxes?

Here are some common ways you might get crypto that counts as taxable income:

• Getting free crypto coins for referring others.
• Getting free crypto from an airdrop.
• Earning interest on crypto holdings.
• Your employer pays your salary in crypto.
• Validating blockchain transactions through staking and mining.

Capital Gains Tax

Selling or spending crypto can trigger capital gains taxes. For example, if you sell your crypto for cash, trade it for other cryptos, or buy something with crypto.

Simply purchasing crypto with regular currency isn’t taxed. But you should keep proper records of these buys for future taxes. If you later sell or trade that crypto, you must know the original purchase price to figure your total capital gain.

Long-Term Capital Gains Tax

Long-term capital gains tax applies if you hold the crypto for over a year before selling or spending it. This tax ranges from 0% to 20%, depending on your income level.

Here is a list of cryptocurrency tax rates for long-term crypto assets.

Tax Rate	Married, Filing Jointly	Unmarried
0%	$0–$94,050	$0–$47,025
15%	$94,051–$583,750	$47,026–$518,900
20%	Over $583,750	Over $518,900

Short-Term Capital Gains Tax

If you sell or trade crypto after holding it for less than one year, it’s subject to short-term capital gains tax. As of 2024, the tax rates match regular federal income tax brackets, ranging from 10% to 37%, depending on your total taxable income amount. So, selling crypto held within a year will face a short-term capital gains tax of 10% to 37%. Your specific rate depends on your tax filing status and annual income level. It’s taxed just like regular personal income.

Tax Rate	Married, Filing Jointly	Unmarried
10%	$0–$23,200	$0–$11,600
12%	$23,201–$94,300	$11,601–$47,150
22%	$94,301–$201,050	$47,151–$100,525
24%	$201,051–$383,900	$100,526–$191,950
32%	$383,901–$487,450	$191,951–$243,725
35%	$487,451–$731,200	$243,726–$609,350
37%	Over $731,200	Over $609,350

 

It’s important to note that most people don’t have one set income tax rate. Instead, you pay higher rates on each additional level of earnings.

For instance, say you made $25,000 last year. You wouldn’t simply owe 12% of that as income tax. Rather, you’d pay 10% on the first $11,000 bracket, then 12% on the next $14,000 bracket.

How To Report Crypto Capital Gains

You report crypto capital gains and losses on IRS Form 8949. This form tracks sales and trades of investment assets like crypto, stocks, and bonds.

To fill it out, list every crypto transaction with dates acquired and sold, sale proceeds, original purchase price, and gain or loss per trade. Then, add up all trades at the bottom to get your net capital gain or loss for the tax year. This number transfers to your main tax return.

How To Report Crypto Income Tax

Reporting ordinary crypto income can get complicated, unlike capital gains, which go neatly on Form 8949.

Your regular taxable crypto income sources wind up on different IRS forms, depending on the situation.

Schedule 1: Miscellaneous income like airdropped coins, hard forks granting you new tokens, or casual crypto hobby earnings would be reported under “other income” on Schedule 1. This does not apply to self-employment tax. This is the main form for reporting cryptocurrency ordinary income for most people.

Schedule B – Common investment reward income from staking cryptos or lending them out to earn interest often should go on Schedule B.

The complexity stems from ordinary crypto income falling under different categories like hobby, business, or investment based on your specific activity.

Schedule C: If you operate a formal crypto business, the income flows through Schedule C. Examples are mining proceeds, staking rewards, running a transaction validation node, or accepting crypto payments for services like contract work. Anything treated as self-employment income. An advantage of Schedule C is deducting applicable business expenses, like electricity costs for mining rigs.

Staying On Top of Crypto Taxes Is Crucial Despite Complex Rules

Even though the regulations are complicated, paying close attention to how you record cryptocurrency transactions may help you save a ton of money on taxes in the long run. The key? Keep detailed records of all crypto activity throughout the tax year.