2023 Crypto Tax Highlights and 2024 Projections: Key Achievements and Anticipations

Taxes and cryptocurrency continue to be a complex and intricate subject. In this article, we will delve into the current state of crypto tax and what investors can anticipate in 2024.

In the world of cryptocurrency, simply holding onto your digital assets, often referred to as ‘HODLing’ by the community, does not incur any tax obligations in almost every jurisdiction.

However, any profits derived from crypto-related activities such as lending, staking, or selling could potentially result in taxation.

So, how exactly is crypto taxed?

In the United States, the Internal Revenue Service (IRS) categorizes all cryptocurrencies as capital assets, which means that capital gains tax applies to profits made from selling them.

For example, let’s say you invested $100 in Ethereum (ETH) and later sold it for $150. In this case, you would need to report the $50 profit, also known as capital gain, on your tax return.

The applicable tax rate would depend on how long you held onto your ETH. If you owned the cryptocurrency for 12 months or less, the IRS would consider your $50 profit a short-term capital gain.

The tax rate for short-term gains from crypto is the same as your regular income tax rate, which ranges from 10% to 37%, depending on your adjusted gross income (AGI).

However, if you held the gains for more than 12 months, the IRS would subject the $50 to a maximum tax rate of 20%.

In other jurisdictions, the long-term tax rates vary. Belgium, Germany, and Switzerland have a 0% tax rate, while New Zealand has a 39% rate, Cuba and Mexico have a 35% rate, and Iceland has a 46% rate.

It’s important to note that crypto earnings are taxable, regardless of how they were obtained. This includes mining, airdrops, promotions, trading, staking, lending, and payment for goods and services. The IRS considers the entire value of your digital assets as taxable at your marginal income tax rate on the day you acquired them. Similar rules apply to crypto earned through yield-bearing activities like staking.

If you retain crypto from these transactions and later use or sell them at higher values than what you paid, you will attract capital gains tax on the profits. Conversely, if you sell your crypto at lower prices than what you paid, you can claim this as a capital loss tax, which can be used to offset other income taxes.

In 2023, the tax on cryptocurrency in the U.S. will vary based on factors such as earnings, filing status, and the duration for which you held your crypto assets before selling them.

If you hold your coins for less than a year, they will be treated as a short-term gain and taxed equivalent to your income tax rate. If you held a cryptocurrency for more than a year, the tax applied would be that of long-term gains.

The table below outlines the tax rates applicable to long-term cryptocurrency gains for the 2023 fiscal year:

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Here are the tax rates applicable to short-term crypto gains for 2023:

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In addition to the IRS rates, several U.S. states have provided additional guidance on how crypto affects income taxes. For example, Illinois has guidelines on apportioning income from crypto transactions, treating them like other types of intangible property for tax purposes. Other states like California, Kentucky, Minnesota, New Jersey, New York, and Washington have issued guidance regarding sales and use tax on digital currency.

Looking ahead to 2024, experts predict further developments in crypto taxation. As more people engage in crypto trading, the demand for services such as crypto tax report generation and blockchain taxation understanding will likely increase. The evolving regulatory environment may also lead to changes in trader tax laws and the taxation of blockchain technologies.

The IRS has already published guidelines for applicable rates when paying taxes on crypto in 2024. The tax rates for 2024 are as follows:

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According to existing tax laws, various crypto transactions may have varying tax implications in the coming year. Some of them include:

– Crypto income: Mining and staking rewards, as well as crypto received as payment for goods or services, may generate taxable income in 2024.
– Sales and trading: Exchanging, using, or trading crypto is considered taxable by the IRS.
– Capital losses: Crypto losses can offset taxes on other capital gains and up to $3,000 of your income, reducing your overall tax bill.
– Buying with stablecoins: Trading with stablecoins will have the same tax implications as trading with fiat currency in 2024.
– Bankruptcies: Losses from crypto-related bankruptcies can be balanced out against profits using the original purchase cost of the affected digital asset.
– NFTs: Sales of NFTs are taxable, with tax rates depending on how long they’ve been held and total income.
– Transferring between digital wallets: Transferring crypto between wallets is not considered a taxable event as long as it’s not exchanged for another cryptocurrency or fiat currency.
– Decentralized finance (defi) protocols: Participating in defi liquidity pools can incur trading taxes, and earnings from defi staking may be subject to capital gains or income taxation.
– Decentralized Autonomous Organizations (DAOs): Obtaining crypto from a DAO is reported as income, and subsequent profits from sale are subject to capital gains tax.
– Airdrops and hard forks: Airdrops and hard forks are taxable and should be reported at their fair market value at the time of receipt.
– Gifts and donations: Receiving cryptocurrency as a gift is not taxable until sold, and donating crypto can result in a tax-free charitable deduction.

For American taxpayers, the deadline for submitting your crypto tax report for 2023 or applying for an extension is October 15, 2024.

While this summary aims to simplify tax rules on cryptocurrency, it’s always recommended to seek professional crypto tax services for exact tax calculations and reporting.

In conclusion, taxes on cryptocurrency can be complex and vary depending on factors such as jurisdiction, holding period, and type of transaction. It’s important for crypto investors to stay informed about the tax regulations in their respective countries and seek professional advice when necessary.