File your crypto taxes in 5 easy steps. Crypto tax software like CryptoTrader and Ledgible can simplify the process.
Crypto taxes may seem complicated. Perhaps it is obvious that you owe tax when you sell crypto for a profit. However, what happens if you exchange it, spend it or someone gives it to you as a gift? Miss a crypto event on your taxes, and it could cost you. Here’s how to report your crypto tax in 2024.
Do You Have to Pay Taxes on Cryptocurrency?
Despite the word currency in its name, the IRS views cryptocurrency as a capital asset, like property. When you sell, swap or trade crypto, you may owe tax. To determine if you owe tax, it’s important to look at how you used crypto.
Not Taxable
- Purchases: No tax is due when you buy cryptocurrency.
- Transfers: Shifting crypto between wallets you own is not taxable. However, disposing of crypto to pay for wallet transfer fees is taxable.
- Market value changes: Changes in the value of crypto aren’t taxable if you continue to hold it.
- Gifts: Crypto gifts are generally not taxable, and gifts up to $18,000 in 2024 don’t require filing Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
Taxable as Capital Gains
Capital gains tax is triggered when you sell, swap or spend crypto at a profit. Your profit is the difference between how much you initially paid and the value you get when you sell, swap or spend crypto.
- Crypto sales: When you sell crypto, you owe tax on gains.
- Spending crypto: Since you are disposing of crypto when you use it to buy goods or services, you pay tax on the profit. You determine profit by comparing your purchase cost on the crypto against the value of the goods or services you paid for.
- Crypto swaps: When you swap crypto, you sell one crypto to buy another. You owe tax if you realize a profit on the crypto you sold.
The tax rate on gains depends on how long you hold the crypto before disposing of it. For crypto held for one year or more, you pay long-term capital gains tax. Profit earned on crypto held for less than one year is taxed at the short-term capital gains rate.
Taxable as Income
- Payment for goods or services: The crypto you receive as payment for goods or services is taxed as ordinary income.
- Airdrops, mining, raffles or rewards: Crypto received as an incentive or reward is taxable as ordinary income.
How Much Tax Do You Have to Pay on Cryptocurrency?
Since cryptocurrency is treated like property for tax purposes, you pay capital gains tax rates on the profit you earn. You pay long-term capital gains rates on crypto you held for one year before disposal. For crypto you held for less than one year, you pay short-term capital gains tax rates.
2024 Short-Term Tax Rates
| Tax Rate | Single | Married filing jointly | Married filing separately | Head of household |
| 10% | $0 - $11,600 | $0 - $23,200 | $0 - $11,600 | $0 - $16,550 |
| 12% | $11,601 - $47,150 | $23,201 - $94,300 | $11,601 - $47,150 | $16,551 - $69,100 |
| 22% | $47,151 - $100,525 | $94,301 - $201,050 | $47,151 - $100,525 | $69,101 - $100,500 |
| 24% | $100,526 - $191,950 | $201,051 - $383,900 | $100,526 - $191,950 | $100,501 - $191,950 |
| 32% | $191,951 - $243,725 | $383,901 - $487,450 | $191,951 - $243,725 | $191,951 - $243,700 |
| 35% | $243,726 - $609,350 | $487,451 - $731,200 | $243,725 - $365,600 | $243,701 - $609,350 |
| 37% | $609,350+ | $731,200+ | $365,600+ | $609,350+ |
2024 Long-Term Tax Rates
| Tax Rate | Single | Married filing jointly | Married filing separately | Head of household |
| 0% | Taxable income up to $47,025 | Taxable income up to $94,050 | Taxable income up to $47,025 | Taxable income up to $63,000 |
| 15% | $47,026 - $518,900 | $94,051 - $583,750 | $47,026 - $291,850 | $63,001 - $551,350 |
| 20% | $518,900 + | $583,750 + | $291,850 + | $551,350 + |
How to File Crypto Taxes in 5 Steps
You can file your crypto taxes following the five steps below.
1. Calculate Your Crypto Gains and Losses
Cryptocurrency tax software can be a helpful tool at tax time, especially if you frequently buy and sell crypto. You won’t need to worry about tracking your crypto activity because the software does this for you.
If you don’t use a crypto software tool, you can start by listing each cryptocurrency sale or taxable transaction you had for the year. Include the following information:
- Date of the sale
- Number of shares sold
- Amount you received
- Original purchase date
- Number of shares purchased
- How much you paid
From there, compare what you purchased the crypto for against what you sold it for to determine if you have a gain or loss.
Compare the purchase and sale dates to see if they were held for less than one year. If so, you’ll categorize these as short-term capital gain or loss transactions. For those you held for at least one year, you include these as capital gains transactions.
2. Complete IRS Form 8949
Use IRS Form 8949 to report your crypto sales and dispositions. For crypto held less than one year, you include these details under Part I of the form. At the end of Part I, you’ll total the proceeds you received, the amount you paid and the net gain or loss on all short-term crypto sales.
You complete Part II of the form in the same fashion, only you’ll include sales of crypto you held for one year or more.
3. Include Form 8949 With the Form 1040 Schedule D
The data compiled on Form 8949 now gets listed on Schedule D of your personal tax return. The totals from Part I of Form 8949 are listed on Part I of your Schedule D. Similarly, you’ll report the totals from Part II of Form 8949 on Part II of Schedule D.
4. Include Crypto Income
If you receive crypto as a reward or incentive, you include the value you received as other income on Schedule 1. Crypto received as payment for goods or services for your business is included in your gross earnings on Schedule C.
5. Complete the Rest of Your Tax Return
Once you have completed these steps above, you can proceed with completing the rest of your tax return.
What Happens if You Don’t Report Your Cryptocurrency Taxes?
If you don’t report your cryptocurrency transactions, it can cost you. Not only will you owe unpaid taxes on crypto, but you will be hit with penalties and interest.
How to Lower Your Crypto Taxes
Here are some strategies to help lower your crypto taxes.
- Hold your crypto: If you can hold off on selling your crypto until you’ve held it for at least one year, you pay the lower capital gains tax rate.
- Harvest losses: When you expect to have a capital gain for the year, selling underperforming crypto at a loss helps to reduce your tax bill.
- Crypto IRA: You can buy and sell crypto without paying cryptocurrency tax on capital gains through a self-directed IRA.
- Donate crypto: When you contribute appreciated crypto to a qualified non-profit, you pay no taxes on gains. Plus, you can deduct your donation on your tax return as a charitable contribution. Your deduction is based on the fair market value of your crypto the day you donate it, not your original cost.
Avoid IRS Headaches When Filing Crypto Taxes
Knowing which crypto events should be reported on your tax return can be tricky. Understanding how crypto affects your taxes can help you avoid costly mistakes. With a little planning, you can avoid these headaches when tax time rolls around.
