U.S. Crypto Tax Guide for 2023

U.S. Crypto Tax Guide for 2023

Content provided by various contributors. DYOR.

The world of cryptocurrency is constantly changing, with innovations and new uses for digital currencies springing up every day. This innovation has left governments, including the U.S., scrambling to catch up. For example, as of 2023, the Internal Revenue Service (IRS) considers cryptocurrency property for tax purposes. This means the tax laws that apply to property transactions, like selling or exchanging property, also apply to cryptocurrencies.

Cryptocurrency Basics

Cryptocurrencies such as Bitcoin, Ethereum, and others are digital or virtual currencies that use cryptography for security. Unlike traditional currencies, they are decentralized and typically operate on blockchain technology, a distributed ledger enforced by a network of computers or “nodes.”

Crypto as Property

According to the IRS, cryptocurrencies are treated as property. Therefore, you will realize a capital gain or loss when you sell, trade, or use it to buy goods or services. This capital gain or loss is what you need to report on your tax return.

Record Keeping

Record-keeping is crucial for accurately calculating and reporting your capital gains and losses. For every transaction, you should track the date, amount, and price at the time of the cryptocurrency’s fair market value transaction. Crypto tax software or a dedicated spreadsheet can greatly help this purpose.

Capital Gains and Losses

You realize a capital gain or loss when you sell or exchange your cryptocurrency or use it to purchase goods or services. The gain or loss is calculated by subtracting your basis (i.e., the amount you paid to acquire the asset plus any associated costs) from the proceeds of the sale or exchange.

If you held the cryptocurrency for more than a year before selling or exchanging it, any gain or loss would be considered a long-term capital gain or loss. Conversely, holding for one year or less would be considered short-term.

Crypto Mining and Staking

Mining or staking cryptocurrency is another way to acquire cryptocurrency, but it comes with its tax implications. The IRS treats the income from mining or staking as ordinary income. This means you must report the value of the mined or staked cryptocurrency as part of your gross income. The value is the cryptocurrency’s fair market value at the time it was received.

Gifts and Donations

Gifts and donations of cryptocurrencies have their tax rules. If you receive cryptocurrency as a gift, you only report it once you sell, trade, or exchange it. If you donate cryptocurrency to a qualified nonprofit organization, you can claim a tax deduction. This deduction will be for the cryptocurrency’s fair market value at the time of the donation.

Non-Fungible Tokens (NFTs)

With the rising popularity of NFTs, it’s important to understand their tax implications. Like cryptocurrencies, NFTs are treated as property for tax purposes. Selling or exchanging an NFT for a profit must be reported as a capital gain. If you’re an NFT creator, you’ll have to report income from the sale of the NFT as ordinary income.

Hard Forks and Airdrops

In 2023, the IRS clarified its stance on hard forks and airdrops. New hard forks or airdrop coins are now treated as ordinary income. The income is equal to the fair market value of the new coins when they are received.

Foreign Cryptocurrency Reporting

U.S. taxpayers holding cryptocurrency in a foreign account or wallet exceeding $10,000 at any point during the tax year must report it to the IRS. This is done by filing the Report of Foreign Bank and Financial Accounts (FBAR) or Form 8938.

Tax Tools and Professionals

Various crypto tax tools, such as CoinTracker, CryptoTrader.Tax and TokenTax can simplify your crypto tax calculations. They help in tracking transactions and calculating tax obligations. Furthermore, tax professionals familiar with cryptocurrency can provide valuable guidance.

Summary and Conclusion

Cryptocurrency taxation can be a complex topic due to its ever-evolving nature. However, you can navigate these complexities more easily by understanding the basics and keeping accurate records. Always consult a tax professional to ensure compliance with all IRS regulations.

Bitcoin live price
Btc
Bitcoin
$26.468
price
0.46817%
price change
TRADE NOW

Remember, this guide provides a general overview of the tax principles of 2023. Of course, individual circumstances can vary greatly, so personalized advice from a tax advisor is strongly recommended.

Read more from author

Editor's picks

Apple Enters Metaverse with Vision Pro AR Headset Launch

On June 5, 2023, Apple Inc. unveiled its newest and riskiest product since the iPhone: the Vision Pro AR headset, marking the tech giant's entry into the burgeoning metaverse market​. With a starting price of $3,499, the Vision Pro is set to be a premium contender in the augmented reality landscape, a market currently dominated by Meta (formerly Facebook)​​. The Vision Pro is an augmented reality (AR) headset offering a unique experience. Unlike most products in Apple's lineup, the Vision…

Top Trending Cryptocurrencies in June 2023: An Overview

As we delve into the cryptocurrency world in June 2023, the landscape is vast, diverse, and rapidly evolving. Let's explore the top 10 trending cryptocurrencies making waves in the market this month. Bitcoin (BTC): With a market cap of $498 billion, Bitcoin continues to dominate the cryptocurrency market as the original cryptocurrency. Launched in 2009 by Satoshi Nakamoto, it operates on a secure blockchain and has seen a meteoric rise in value since its inception. Ethereum (ETH): Ethereum, a cryptocurrency…

Best A.I. Crypto Coins In 2023: Top A.I. Blockchain projects

The last decade has seen an unprecedented surge in technological innovation, with two fields leading the charge: Artificial Intelligence (AI) and blockchain. Individually, they have the power to revolutionize industries; but when combined, they open up new possibilities poised to redefine the future. Artificial Intelligence is a branch of computer science that involves creating machines capable of mimicking human intelligence. Through machine learning and neural networks, AI can analyze data, learn from it, make decisions, and improve its performance over…

ChatGPT’s 2024 Crypto Predictions

As the world grapples with the effects of the 21st century's digital revolution, cryptocurrency stands out as one of the most significant breakthroughs. Born from the innovative application of blockchain technology, cryptocurrencies have brought on a new age of decentralization and transparency, redefining the global financial landscape. Trends Shaping the Future of Cryptocurrency Decentralized Finance (DeFi): DeFi aims to recreate traditional financial systems like loans and interest in a decentralized manner, eliminating the need for intermediaries such as banks. Cryptocurrencies…

The Best A.I. Crypto Trading Bots

As cryptocurrency evolves, trading has become increasingly automated, with many traders now relying on artificial intelligence (AI) and machine learning (ML) to maximize their profits. These AI-powered crypto trading bots are automated software designed to analyze market data, execute trades, and optimize profits on behalf of traders. Here are some of the top AI crypto trading bots of 2023: Dash 2 Trade As the overall best AI crypto trading bot for 2023, Dash 2 Trade boasts advanced intelligence and analytics…

The Latecomer’s Guide to Cryptocurrency

If you've arrived late to the cryptocurrency party, don't worry. It's always possible to start. Here's a primer to get you up to speed with crypto. Understanding Cryptocurrency Cryptocurrency is a form of digital or virtual currency that uses cryptography for security. Unlike traditional money, cryptocurrencies are decentralized and often operate on blockchain technology, a distributed ledger enforced by a network of computers known as nodes. The first and most well-known cryptocurrency is Bitcoin, but there are now thousands, including…

U.S. Crypto Tax Guide for 2023

The world of cryptocurrency is constantly changing, with innovations and new uses for digital currencies springing up every day. This innovation has left governments, including the U.S., scrambling to catch up. For example, as of 2023, the Internal Revenue Service (IRS) considers cryptocurrency property for tax purposes. This means the tax laws that apply to property transactions, like selling or exchanging property, also apply to cryptocurrencies. Cryptocurrency Basics Cryptocurrencies such as Bitcoin, Ethereum, and others are digital or virtual currencies…

The Best Beginner Crypto Trading Strategies to Learn

As the cryptocurrency market continues to evolve, it offers exciting opportunities for investors and traders alike. The market's volatility might seem intimidating for beginners, but if equipped with the right strategies, one can navigate the crypto space effectively. Here are some beginner-friendly crypto trading strategies that could help you embark on your trading journey. 1. Dollar-Cost Averaging (DCA) Dollar-cost averaging (DCA) is a strategy where you invest a fixed amount of money in a particular cryptocurrency regularly, irrespective of its…

Understanding Utility NFTs: A Comprehensive Guide

Before we dive into utility NFTs, let's briefly recap what NFTs are. NFTs, or Non-Fungible Tokens, are a type of digital asset created using blockchain technology. They're "non-fungible" because they are unique and can't be replaced with something else. This contrasts with fungible cryptocurrencies like Bitcoin or Ethereum, which can be exchanged like-for-like. NFTs can represent ownership or proof of authenticity for a wide range of tangible and intangible items, including artwork, collectibles, music, games, and more. What Are Utility…