Cryptocurrency Taxes Explained

By DeBlanc + Murphy
April 17, 2024

Despite its volatility, cryptocurrency has gained traction with seasoned investors and newcomers alike. But what are the tax implications, and how can you stay compliant?

Here's everything you need to know about cryptocurrency taxes as a Washington, D.C. resident.

Crypto Capital Gains Taxes

Capital gains tax is a tax imposed on the profit you earn from the sale of an asset that has increased in value over time, such as stocks, bonds, and real estate properties.

Cryptocurrencies, although not typically considered traditional investments like stocks and bonds, are subject to capital gains tax, and the rate you’ll pay is based on the holding period. Here’s how it works:

Short-Term Capital Gains

If you hold cryptocurrency for less than one year before selling or exchanging it, the gains are considered short-term capital gains. In Washington, D.C., short-term capital gains are subject to ordinary income tax rates, which can vary depending on your income bracket.

Long-Term Capital Gains

If you hold cryptocurrency for more than one year before selling or exchanging it, the gains qualify for long-term capital gains tax treatment. Washington, D.C., offers preferential tax rates for long-term capital gains, which can vary based on your income level.

Crypto Income Taxes

In addition to capital gains tax, any income you generate from cryptocurrency is also subject to taxation. For example:

  • If you provide a service to someone and they pay you in cryptocurrency, it counts as income.
  • Earnings from interest or dividends from cryptocurrency investments are subject to income tax.
  • Any income generated from cryptocurrency is subject to taxation in Washington, D.C.

Sales Tax

If you live in Washington, D.C., you know there’s a 6% sales tax. That sales tax also applies to certain cryptocurrency transactions, particularly those involving the purchase of goods or services. The tax is calculated based on the cryptocurrency's fair market value at the time of the transaction.

How to Make Sure You’re In Compliance

Like any other investment, keeping detailed records of cryptocurrency transactions, purchase prices, sale prices, holding periods, and any income generated is essential. These records will allow you to accurately report capital gains, income, and sales tax obligations on your annual tax returns.

Tap Into Our Expertise

At DeBlanc, Murphy & Murphy, our Washington, D.C. tax professionals can not only help you navigate cryptocurrency tax laws, but we can advise you on crypto investments as well. As crypto consulting experts since 2015, we’ve worked with everyone from novice investors to crypto whales. We’ll help:

  • Determine the best way to integrate crypto assets into your overall diversified portfolio.
  • Strategically divest and diversify from large, consolidated crypto positions in a tax-efficient manner.
  • Facilitate charitable contributions of crypto assets.

Make DeBlanc, Murphy & Murphy your trusted crypto advisor and tax professional. Book a meeting today!

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