Key takeaways
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US crypto investors must file their 2024 tax returns by April 15, 2025, ensuring all crypto transactions are accurately reported to the IRS.
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Crypto held for less than a year is taxed as ordinary income (10%-37%), while holdings over a year qualify for lower capital gains rates (0%, 15%, or 20%).
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Selling, trading, or spending crypto triggers taxes, while holding or transferring between wallets does not.
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Mining, staking, airdrops, and crypto payments are taxed as income at applicable rates.
The world of cryptocurrencies can indeed be an exciting space for investors, but as the tax season approaches, many US investors find themselves grappling with confusion and uncertainty.
With the upcoming tax filing deadline of April 15, 2025, it’s a critical time to get a handle on crypto tax obligations. Ask most US crypto investors, and they’ll likely tell you that figuring out what transactions trigger a taxable event feels like navigating a maze.
Understanding various aspects of tax filing is crucial for accurately filing taxes, avoiding penalties and staying compliant with the Internal Revenue Service (IRS). This article breaks down key elements like tax brackets, rates, exemptions and other critical details.
How does the IRS tax crypto?
The Internal Revenue Service, the agency responsible for collecting US federal taxes, treats cryptocurrencies as property for tax purposes. You pay taxes on gains realized when selling, trading or disposing of cryptocurrencies. For short-term capital gains (held less than a year), you pay taxes at the rates of 10%–37%, depending on your income bracket.
Long-term capital gains (assets held for over a year) benefit from reduced rates of 0%, 15% or 20%, also based on your taxable income.
When you dispose of cryptocurrency for more than its purchase price, you generate a capital gain. Conversely, selling below the purchase price results in a capital loss. You must report both your capital gains and losses for the year in which the transaction occurs, with gains being taxable and losses potentially offsetting gains to reduce your tax liability.
With the upcoming April 15, 2025, deadline for filing 2024 tax returns, US crypto investors need to ensure these transactions are accurately tracked and reported.
To illustrate, suppose you purchased Ether (ETH) worth $1,000 in 2023 and sold it after a year in 2024 for $1,200, netting a $200 profit. The IRS would tax that $200 as a long-term capital gain, applying the appropriate rate based on your 2024 income.
Taxes are categorized as capital gains tax or income tax, depending on the type of transactions:
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Capital gains tax: Applies to selling crypto, using crypto to purchase goods or services, or trading one cryptocurrency for another.
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Income tax: Applies to crypto earned through mining, staking, receiving it as payment for work, or referral bonuses from exchanges.
These distinctions are crucial for accurate reporting by the April 15 deadline. Gains are taxed, while losses can help offset taxable income, so detailed record-keeping is a must.
Did you know? In Australia, gifting cryptocurrency triggers a capital gains tax (CGT) event. The giver may need to report gains or losses based on the asset’s market value at the time of transfer, though certain gifts — like those between spouses — may qualify for exemptions. While this differs from US rules, it highlights how crypto taxation varies globally.
How crypto tax rates work in the US
In the US, your crypto tax rate depends on your income and how long you’ve held the cryptocurrency. Long-term capital gains tax rates range from 0% to 20%, and short-term rates align with ordinary income tax rates of 10%–37%. Transferring crypto between your own wallets or selling it at a loss doesn’t trigger a tax liability.
You only owe taxes when you sell your crypto, whether for cash or for any other cryptocurrency. Consider this example: Suppose you bought crypto for $1,000 in 2024, and by 2025, its value rose to $2,000. If you don’t sell, no tax is due — unrealized gains aren’t taxable.
If you sell cryptocurrency after holding it for a year or less, your profits are subject to short-term capital gains tax. These gains are taxed as ordinary income, meaning they are added to your total taxable earnings for the year.
Tax rates are progressive, based on income brackets, so different portions of your income are taxed at different rates. For instance, a single filer in 2025 pays 10% on the first $11,000 of taxable income and 12% on income up to $44,725. Short-term rates are higher than long-term rates, so timing your sales can significantly impact your tax bill.
Understanding crypto capital gains tax in the US
If you sell cryptocurrency after holding it for a year or less, your profits are subject to short-term capital gains tax. These gains are treated as ordinary income and added to your total taxable earnings for the year. Since tax rates are based on income brackets, different portions of…
cointelegraph.com