The crypto tax burden you may not have considered

Bitcoin (BTC-USD) is up more than 57% in 2024, which also makes navigating the tax implications of bitcoin transactions more pressing. The IRS has announced it will hire two former crypto executives to support its digital currency compliance and enforcement programs.

Yahoo Finance reporter Jennifer Schonberger joins Wealth! to share three things crypto-buyers need to know when filing taxes.

For more expert insight and the latest market action, click here to watch this 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 that also makes navigating, the tax implications of crypto transactions more pressing as tax professionals worry about increased scrutiny.

The IRS, has announced it will hire two former crypto executives to support its digital currency service reporting compliance and enforcement programs. So here to make crypto filing easier for us is Yahoo Finance's senior reporter, Jennifer Schonberger to give us the latest. Hey Jen.

JENNIFER SCHONBERGER: Hey Brad, if you bought or sold crypto last year, you'll need to report that to the IRS. Here are three things you need to know when it comes to filing your taxes and crypto. Number one, you'll need to tell the IRS whether you received or sold crypto last year. At the very top of that 1040 individual tax form, the IRS will again ask whether during 2023 you received or sold a digital asset.

Check yes or no depending on your answer. If you only owned crypto during 2023 and didn't sell it, you can check the no box. Of course, a digital asset includes cryptocurrencies like Bitcoin or either stablecoins and non-fungible tokens or NFTs. Number two, for tax purposes, the IRS has determined that crypto should be treated like property and thus reported in many ways similar to stock sales.

So if you sold crypto last year with a gain, you will owe taxes on that. The tax rate is determined by how long you held the crypto. If you held for a year or less, that's considered a short term gain and would be taxed at the same rate as your income. If you held crypto assets for more than a year before selling, then you would be taxed at the capital gains rate, which ranges from 0% to 15% or 20% depending on your income bracket.

And number three, if you sold your crypto investment at a loss, leverage that for tax purposes. You can use the loss to offset other income up to $3,000, $1,500 if married and filing separately to reduce your taxable income. And unlike stocks, investors can take advantage of the fact that wash sale rules do not apply to crypto right now.

That is with stocks, investors can't sell shares at a loss and then buy those shares back within 30 days and still claim that loss to offset other capital gains. But you can do that now with crypto. Now remember this only applies to 2023 transactions and if you bought and sold one of those spot Bitcoin exchange traded products this year, that doesn't apply to this tax filing season.

And by the way, the IRS has not issued guidance yet on those spot Bitcoin ETFs. And also one other note, if you received crypto as income last year, you'll need to report that as wages to the IRS. Brad.

- OK. Jennifer, so the IRS is also launching a new program to help first users file electronically and for free. What else do we know about this program?

JENNIFER SCHONBERGER: Hey Brad. Yeah, that's right. So the IRS overseen by Treasury has launched a pilot program in 12 straight states across our country, allowing Americans to file their taxes electronically directly with the IRS for free. The caveat here is that it is for very simplistic tax filings.

So basically just those w-2s. Again, this is very much in a pilot stage. It's being funded through the Inflation Reduction Act. If this pilot program is to be expanded and to allow people with more complicated taxes to file directly for free, more funding would need to be allocated to this. Of course, this is something that firms like H&R Block are fighting vehemently.