How to Calculate Crypto Capital Gains Tax in 2024 (from a CPA)

October 17, 2023

Are you struggling to calculate your crypto capital gains tax? You’re not alone. If you’re reading this, you probably know that capital gains are an essential piece of your crypto tax puzzle. You’ve probably also realized that figuring out how to calculate crypto capital gains is a widespread challenge.

The reality is that many investors need professional help to get accurate numbers. In this guide, we’ll explain why crypto tax reporting is so difficult and how to calculate your taxable gains.

Do you have to pay taxes on cryptocurrency gains?

Yes, you must pay taxes on capital gains earned from cryptocurrency. In many jurisdictions, including the United States, those profits aren’t just numbers on a screen—they’re taxable. Did you turn a profit trading ETH for DOGE? That’s a capital gain. Swapped your Cardano for a Tesla? Uncle Sam wants to know.

How much tax do you pay on crypto gains?

Short-term capital gains are taxed at the same rate as your ordinary income, ranging from 10-37%. Long-term capital gains have lower tax rates, ranging from 0-20%. Three primary factors impact the tax rate applied to your crypto gains:

  1. Holding Duration: Crypto gains are grouped into short-term and long-term based on how long you’ve held the asset. Crypto assets held for 1 year or less are considered short-term. These are subject to a higher tax rate than assets held for more than 1 year, which are deemed long-term.
  2. Your Taxable Income: Your overall taxable income determines your tax rate for each category.
  3. State Taxes: Depending on which state you live in, you may have to pay state taxes on capital gain as well as federal taxes.

Tax rates on short-term cryptocurrency gains (Tax year 2023)

Tax Rate Single Filer Married Filing Jointly Married Filing Separately Head of Household
10% $0 to $11,000  $0 to $22,000  $0 to $11,000  $0 to $15,700
12% $11,000 to $44,725 $22,000 to $89,450 $11,000 to $44,725 $15,700 to $59,850
22% $44,725 to $95,375 $89,450 to $190,750 $44,725 to $95,375 $59,850 to $95,350
24% $95,375 to $182,100 $190,750 to $364,200 $95,375 to $182,100 $95,350 to $182,100
32% $182,100 to $231,250 $364,200 to $462,500 $182,100 to $231,250 $182,100 to $231,250
35% $231,250 to $578,125 $462,500 to $693,750 $231,250 to $346,875 $231,250 to $578,100
37% $578,126 or more $693,751 or more $346,876 or more $578,101 or more

Tax rates on long-term cryptocurrency gains (Tax year 2023)

Tax Rate Single Married Filing Jointly Married Filing Separately Head of Household
0% $0 to $44,625 $0 to $89,250 $0 to $44,625 $0 to $59,750
15% $44,626 to $492,300 $89,251 to $553,850 $44,626 to $276,900 $59,751 to $523,050
20%  $492,301 or more $553,851 or more $276,901 or more $523,051 or more

Why are crypto capital gains so difficult to calculate?

It’s challenging to calculate capital gains from crypto because cryptocurrency is taxed like stocks, where each sale or disposition is a taxable event. But that’s where the similarities end.

With stocks, your transactions are mostly limited to buying, selling, and perhaps receiving dividends. This makes it easy to calculate capital gains. Crypto, on the other hand, operates in a much more dynamic and complex ecosystem.

Imagine having stocks that you constantly shuffle between different brokerage accounts, or lending parts of your stocks to others to earn interest. Picture wrapping your stocks in a different cover just so a particular platform recognizes them.

Sounds complex, right? Yet, these activities are similar to common crypto practices like transferring between wallets, staking, or wrapping tokens for blockchain compatibility. This multi-faceted use of crypto makes calculating capital gains a unique challenge.

How do you calculate crypto gains?

In theory, the calculation for crypto capital gains is simple: Proceeds (sale price) minus Cost Basis (your initial investment) equals Capital Gain or Capital Loss.

Infographic titled 'How to Calculate Crypto Gains'. It describes the process in three main steps: 1. Illustration of a Bitcoin symbol. Text reads: 'You buy 1 BTC for $15,000.' 2. Illustration of a Bitcoin symbol with a green arrow pointing upward. Text reads: 'You sell the BTC for $20,000.' 3. Graphic of a paper receipt showing a calculation: '$20,000 minus $15,000 equals $5,000'. Text reads: 'Your taxable gain for this sale is $5,000.' Below the steps, there's a section highlighted in orange titled 'Capital Gains Tax Events:', listing three bullet points: • Selling Crypto • Converting or Swapping Coins • Making Purchases with Crypto At the bottom, the logo for 'Gordon Law' is displayed with the tagline: 'The Original Crypto Tax Pros, Since 2014'."

In reality, it’s extremely complicated for most investors. Here’s the challenge:

Imagine you’re Sarah, an enthusiastic crypto investor. Over the past few years, you’ve:

  • Bought and Sold Multiple Times: Sarah first bought Bitcoin when it was $5,000. Then she bought more at $10,000, $15,000, and again at $20,000. Then, she sells a fraction of her Bitcoin today. Which purchase price does she use to determine her initial investment? This is the challenge of determining cost basis for crypto.
  • Used Multiple Exchanges: Like many investors, Sarah didn’t just stick to one platform. She bought and sold on Coinbase, Binance, and Kraken. Each exchange has its own set of transaction records, and combining all of them into one data set is like assembling a jigsaw puzzle. Even using crypto tax software, self-transfers usually are not tagged correctly and you must adjust them one by one.
  • Participated in Crypto-to-Crypto Trades: Sarah also used some of her BTC to buy ETH. This isn’t simply swapping crypto; it’s a sale of BTC (a taxable event) and a purchase of ETH, both of which have their own cost bases.
  • Earned Crypto as Rewards or Income: Let’s say Sarah received an airdrop or engaged in staking, earning her additional crypto. These rewards have their own cost basis (the fair market value of the crypto at the time it was received).
  • Lost Track of Dates and Amounts: Over her years of trading, Sarah, like many investors, might not have kept detailed records of every single transaction. Yet, the exact date and amount of each transaction are essential pieces of the puzzle.
All these factors combined make your crypto cost basis about as easy to find as a needle in a haystack. And it’s the clarity and accuracy of this number that ensures you’re paying the right amount in taxes.

If you’d rather not do this math after every $5 purchase with a Coinbase card, a crypto gains calculator can help. None of the tools on the market today are perfect, but they help automate the process.

Alternatively, an experienced cryptocurrency accountant like the ones at Gordon Law Group can do it all for you, saving you time and money.

How to avoid crypto capital gains tax

Ever heard of the saying, “It’s not about how much you make, but how much you keep”? Well, there are strategies in the crypto world that can help keep your money in your (digital) wallet instead of handing it over to Uncle Sam. Some folks simply hold their assets long-term, while others might donate their crypto for good karma and tax advantages. Discover more ways to avoid crypto capital gains tax here!

Professional crypto gains calculator for fast and easy filing

As you navigate the murky waters of crypto taxation, there’s no shortage of tools claiming to guide the way. But relying on those tools is like navigating with a sextant—sure, it’s useful, but you need skills, time, and patience to reach your destination safely.

Meanwhile, choosing Gordon Law Group is like entrusting your voyage to a seasoned captain. All you need to do? Sit back, sip your champagne, and enjoy the journey, knowing you’re on the right course.

Your next move: Let 2024 be the year your crypto tax filings are as smooth as your trades. Reach out to Gordon Law Group and file with confidence!

Speak with Our Crypto Tax Pros

Use the form below or call (847) 580-1279