1. Understanding Taxable Events
2. Calculating Gains and Losses
3. Federal vs. Local Taxation of Cryptocurrencies

Many people mistakenly believe that the anonymity of cryptocurrencies exempts them from tax obligations. In reality, cryptocurrency income is taxable. Here’s a guide on how to pay taxes on your cryptocurrency income in 2024.

Understanding Taxable Events

The first thing to understand is the taxable events. There are many ways to earn cryptocurrency income, and identifying these events will help establish the correct procedures for making these payments. **Trading cryptocurrency** Selling one cryptocurrency and buying another is taxable. According to crypto expert Michael Graw, many people are interested in high profits and the promise of early investments. It is important that every trade reports the fair market value of the cryptocurrency received. **Purchasing goods and services** Cryptocurrencies can be used to buy goods or pay for services, which is taxable in most countries. The customer must report the fair market value of the cryptocurrency used, which can be more complex than just stating the price in fiat currency. **Selling cryptocurrency** Selling cryptocurrency for fiat money (like USD or EUR) is also considered a taxable event. Capital gains and losses must be reported. **Mining cryptocurrency** Mining cryptocurrency requires significant expenditure on equipment, software licenses, and electricity. Mining rewards are considered income and must be reported as such. **Crypto gained through luck-based games** Winnings from luck-based games, even in anonymous casinos, must be reported. Underreporting or misreporting income can lead to serious legal trouble.

Calculating Gains and Losses

After identifying all taxable events, it is crucial to put all income and expenses on paper. Start by calculating the cost basis, which includes the exact date and time and the amount of money originally paid for the cryptocurrency. Next, provide the fair market value of the cryptocurrency at the time of acquisition. The main aspect here is calculating capital gains, meaning that at the time of sale, the value of the cryptocurrency is higher than at the time of acquisition. There is also the opposite scenario, where the market value at the time of sale is lower than the value during acquisition.

Federal vs. Local Taxation of Cryptocurrencies

Regarding federal income tax, the IRS views cryptocurrencies like property, meaning they are subject to capital gains tax rules. State taxation varies by state. For instance, there are income-tax and no-income-tax states, and some have specific tax incentives for cryptocurrencies. Wyoming is notably proactive in creating favorable conditions for crypto businesses and users. As more merchants accept crypto assets as payment, the issue of local and state taxation becomes even more significant. The importance and adoption of crypto assets will only increase, making understanding regulatory norms crucial for everyone.

In 2024, cryptocurrencies are no longer unregulated and insignificant enough to evade the IRS's attention. It’s important to understand tax obligations and meet them fully. Resources for this are available, so the claim of not knowing how to do it is no longer valid.