Cryptocurrency Taxation 

The IRS considers cryptocurrencies as property  rather than currencies.1 That means they’re treated a lot like traditional investments, such as stocks, and can be taxed as either capital gains or as income.

- When you buy cryptocurrency or stocks, the original purchase price of the asset becomes its cost basis.

- When you sell that asset, you’re taxed based on the difference between the cost basis and the sale price.

- Capital gains and capital losses are based on the net total of all transactions that year. 

- If you sold five different assets for a total gain of $10,000 and three other assets at a total loss of $15,000, then you have $5,000 in capital losses.

- You can deduct up to $3,000 a year in capital losses from your taxable income and can carry over losses exceeding that annual limit to future years. 

- For example, if you had $5,000 in capital losses in 2024, you can reduce your taxable income by $3,000 in 2024 and apply the remaining $2,000 in losses to 2025.

- Capital gains are taxed differently based on how long you hold an asset before selling. 

- Short-term capital gains taxes apply to assets you’ve held for one year or less and long-term capital gains taxes are assessed when you sell an asset after owning it for more than one year.

- Your exact capital gains rate depends on several factors, but long-term capital gains are typically taxed at a lower rate than short-term gains.

-  And you may not have to pay any capital gains tax at all, depending on your filing status and taxable income.

- If you use digital currency for daily transactions, you may want to enlist the help of a tax professional. 

Taxable events related to cryptocurrency include:

1. Sale of a digital asset for fiat

2. Exchange of a digital asset for property, goods, or services

3. Exchange or trade of one digital asset for another digital asset

4. Receipt of a digital asset as payment for goods or services

5. Receipt of a new digital asset as a result of a hard fork

6. Receipt of a new digital asset as a result of mining or staking activities

7. Receipt of a digital asset as a result of an airdrop

8. Any other disposition of a financial interest in a digital asset

1. Buying cryptocurrency with fiat money

2. Donating cryptocurrency to a tax-exempt non-profit or charity

3. Making a gift of cryptocurrency to a third party (subject to gifting exclusions)

4. Transferring cryptocurrency between wallets