Bitcoin (BTC-USD) is up over 57% in 2024, which makes avoiding the tax implications of Bitcoin transactions even more urgent. The IRS has announced the hiring of two former crypto executives to support its digital currency compliance and enforcement program.
Yahoo Finance reporter Jennifer Schonberger joins Wealth! She shares three things crypto buyers need to know when filing taxes.
For more expert insights and the latest market trends, click here to watch the full episode of Wealth.
Editor's note: This article was written by Gabriel Roy.
video transcript
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– Bitcoin euphoria is back, baby. The world's largest cryptocurrency is up more than 57% this year in 2024. But how to resolve the tax implications of crypto transactions has become more urgent as tax experts worry about increased scrutiny.
The IRS announced the hiring of two former virtual currency executives to support the Digital Currency Service's reporting compliance and enforcement programs. So, to make declaring your crypto assets easier, Yahoo Finance's senior girlfriend reporter Jennifer Schonberger provided us with the latest information. Hi Jen.
Jennifer Schoenberger: Brad, if you bought or sold virtual currency in the last year, you need to report it to the IRS. Here are three things you need to know about tax and cryptocurrency filings. First, you need to tell the IRS if you received or sold any cryptocurrency in the last year. The IRS will again ask at the top of her 1,040 personal tax forms whether she received or sold any digital assets during 2023.
Please check “Yes” or “No” depending on your answer. If you only owned cryptocurrencies during 2023 but did not sell them, you can check the “No” box. Of course, digital assets include cryptocurrencies such as Bitcoin, stablecoins, non-fungible tokens and NFTs. Second, for tax purposes, the IRS has determined that virtual currency should be treated like property, and therefore should be reported in many ways similar to the sale of stocks.
So, if you sold your cryptocurrencies last year and made a profit, you will be liable to pay taxes on it. The tax rate is determined by the period of time you held the virtual currency. If held for less than a year, it is considered short-term gain and is taxed at the same rate as income. If he held the crypto asset for more than one year before selling, he would be taxed at capital gains tax rates ranging from 0% to 15% or 20%, depending on his income bracket.
And third, if you sell your crypto investments at a loss, use that for tax purposes. He can use up to $3,000 to offset the loss against other income, or $1,500 if he is married and files separately to reduce his taxable income. And unlike stocks, investors can take advantage of the fact that wash sale rules do not currently apply to cryptocurrencies.
This means that in the case of stocks, if an investor sells the stock at a loss and then buys it back within 30 days, he or she cannot claim that loss to offset other capital gains. But now, with cryptocurrencies, this is possible. Note here that this only applies to his 2023 trades, and if he bought or sold any of the Spot Bitcoin exchange traded products this year, it will not apply to this tax filing season.
By the way, the IRS has not yet issued guidance regarding these spot Bitcoin ETFs. Another thing to note is that if he received virtual currency as income last year, he will need to report it to the IRS as salary. Brad.
– got it. Jennifer, the IRS is also launching a new program that will allow first-time users to file electronically for free. What else do we know about this program?
Jennifer Schoenberger: Hey, Brad. Yes, that's right. So the IRS, overseen by the Treasury Department, launched a pilot program in 12 states across the country to allow Americans to file their taxes electronically and directly with the IRS for free. Please note that this is for a very simple tax return.
Basically, it's just these W-2s. Again, this is still in the testing phase. Funding is provided through the Inflation Control Act. If this pilot program were to be expanded to allow people with more complex taxes to file directly for free, more funding would need to be allocated to it. Of course, this is something that companies like H&R Block are fighting hard against.
