Updated: 21st September 2022

This article seeks to address some of the main questions that we get asked about US tax on cryptocurrency and demystify how the IRS handles the taxation of cryptocurrency in the U.S. 

We are certified and specialist in US and UK tax for tax filers worldwide. 

Please note: Recommendations and obligations for crypto investors will vary depending on the circumstance. This article offers a general overview of the topic.

We recommend always consulting a certified UK tax adviser for cryptocurrency to ensure your investments are treated in line with UK tax law and for maximum savings against tax.

This article is updated as new information about US tax on cryptocurrency emerges

Click below to skip to a section that may be more relevant to your circumstance. If you can’t find what you are looking for, feel free to contact us and we may be able to help you and your situation.

What is Cryptocurrency?

How is Cryptocurrency taxed in the U.S.?

Capital Gains tax on Cryptocurrency

How to work out the Capital Gain Owed? 

Cryptocurrency and Federal Income Tax

Tax implications on staking crypto assets

Tax considerations when spending cryptocurrency

When is Crypto-Based Activity Non-Taxable? 

Does US tax on cryptocurrency vary by state?

Send us your US cryptocurrency tax questions and we will update this article and email you back with answers

Working the amount of capital gains tax you owe on the disposal of your crypto is fairly straight forward. You will need the following information to perform the calculation: 

• The amount your cryptocurrency was worth in USD at the time of purchase, plus the fees you paid to acquire it

• The date you bought it and how long you have owned it for

• The Amount you received for the cryptocurrency upon disposal or the equivalent amount in USD.

If you subtract the cost of purchase from the amount you sold it for you will either be at a gain or a loss. If you are at a capital gain then you will be eligible to pay Capital Gains Tax on the profit from the disposal of the crypto. 

There is not a specific Capital Gains Tax rate for cryptocurrency. Rather it is based on the regular Capital Gains Tax Brackets. 

The type of Capital Gains Tax you will pay, either long term or short term, is entirely dependent on how long you have owned the crypto for. 

For example, if you have held the Crypto in question for less than a year, you will pay the short-term capital gains rate. If you have held the crypto for longer, you will pay the long-term capital gains rate, which is generally less.

 There are circumstances where crypto could be regarded as income rather than a capital gain. If you have received crypto as a form of payment, then this will be regarded as income and may be subject to income tax depending on your tax situation. 

The IRS has a fair amount of guidance to determine if your cryptocurrency could be seen as income. Some circumstances include: 

• Getting Paid in crypto 

• Mining Crypto 

• Receiving an Airdrop 

• Receiving new coins from a Hard Fork

• Staking Rewards 

• Referral Bonuses

Alongside the above, there are other areas which the IRS guidlines are less clear on but could still be considered as an income stream. These include: 

• Referral Rewards like Binance Referral

• Learn to earn campaigns, like Coinbase Learning Center 

• Watch to Earn platforms like Odysee

• Browse to Earn platforms like Premission.io browser extension

• Play to Earn games like Axie Infinity

• Shop to Earn through browser extensions like Lolli

• Share Public addresses to earn on platforms like Moon Faucet

However, it can be inferred that earning tokens and coins in this manner can be classed in the same bracket as Mining crypto and Staking Rewards which leaves them eligible for taxation. 

For tax purposes the value of your cryptocurrency is determined in the same manner as it was as a capital gain. That is the equivalent value in USD that the crypto was worth on the day you received it, but this time in the form of payment. 

This can make accounting for crypto payments fairly time consuming, and tricky. As feasibly each payment you receive for goods, could be worth a different amount for every payment received. At the very least the value is likely to fluctuate across the year. 

After compiling the relative value of your cryptocurrency in USD this would then be added to your taxable income for the tax year in question. Click here to view the U.S. income tax thresholds.

For a clear understanding on whether your cryptocurrency could be considered as taxable income we recommend speaking to a tax professional for peace of mind. 

When you spend cryptocurrency you are generally required to capital gains tax on the amount. 

Currently there is one single tax rate for all of the different types of cryptocurrencies which is not influenced by how the crypto-asset is spent. 

Although there are many circumstances in which your crypto activity will be taxable, there are a few circumstances that are considered non-taxable. These are as follows: 

• Buying Crypto with Fiat: You are not taxed when buying crypto with cash, instead you may face a Capital Gains Tax upon the selling of the currency when the value is “realised”.

• Donating crypto to a Charity of Non-Profit Organization

• Receiving a gift:  You can gift up to $15,000 per recipient per year without paying taxes (and higher amounts to spouses). count as a gift, even if you didn’t mean it that way.  

• Transferring crypto to yourself: Transferring crypto between wallets or accounts you own isn’t taxable. 

Even in the list above, it is worth working closely with a tax professional when performing crypto-based transactions to confirm whether you will or will not owe tax on your crypto asset. 

There is currently no defined US tax rules specifically for cryptocurrency in any state. However there are some states that are more friendly for crypto taxpayers.

Need More Information?

Recommendations and obligations for crypto investors will vary depending on circumstance. This article offers a general overview of the topic.

We recommend always consulting a certified US tax adviser for cryptocurrency to ensure your investments comply with the IRS’s tax regulations, and for maximum savings against tax.

To speak to one of our certified UK tax advisors drop us a message or book an appointment