The end of one tax year signals the start of another, and in the fast-evolving crypto space, it’s never too early to start thinking about taxes. Whether you’re a seasoned pro or new to the blockchain, preparing for crypto taxes can feel complex and stressful. But fear not! We’re here to decrypt this complex topic and help you start the new year on the right foot.
In this guide, you’ll learn what’s new in 2024, how to complete last year’s taxes ahead of schedule, and steps to de-stress tax season and minimize what you owe in 2024.
A Year-End Checklist for 2023
The order of business in the New Year is getting everything for the April 15th tax deadline. Before we talk about filing your 2023 taxes, it’s worth ensuring that you’ve taken the steps you want to take before the end of the year.
Some important deadlines include:
- Tax-Deductible Donations – You have until midnight on December 31, 2023, in your time zone to make any tax-deductible crypto donations. By donating appreciated crypto, you can avoid paying capital gains taxes on any increase in value over the cost basis and deduct the current market value on your 2023 taxes if you itemize.
- Tax-Loss Harvesting – You have until midnight (in your respective timezone) on December 31, 2023, to sell losing positions and harvest tax losses. If they meet the requirements, you can use these losses to offset other capital gains and up to $2,000 in income, which may boost your after-tax performance.
- Crypto IRA Contributions – You have until midnight on April 15, 2024 (in your time zone) to make any 2023 IRA contributions. Depending on the type of IRA, these contributions can help you offset your 2023 taxable income or avoid paying future capital gains on any increase in the value of your crypto holdings.
If you haven’t already, meeting with your accountant to discuss any other steps to minimize your 2023 taxes before the new year deadline is a good idea.
Filing Your 2023 Taxes by April
The next step is preparing last year’s taxes by the April 15th deadline to ensure you file on time and avoid any penalties and interest. While waiting a couple of months or even filing an extension is tempting, you can dramatically reduce your future stress levels by starting early.
There are a few steps to this process:
- Aggregate Transactions – Start by creating a unified list of crypto transactions from 2023 across all your wallets and exchanges. That way, it’s easier to match up any sales with purchases based on your accounting method of choice.
- Compute Gains & Losses – After matching up transactions, compute the capital gain or loss for each crypto sale or exchange and add them to Form 8949 along with the transaction identifier and any other relevant information.
- Complete the IRS Forms – Add the totals from Form 8949 to Form 1040 Schedule D. If you have any crypto income, you may also need to complete Schedule 1, Schedule B, or Schedule C, depending on the classification of that income.
ZenLedger streamlines these steps by connecting with your wallets and exchanges, importing all your transactions, and automatically generating the IRS forms you need. That way, you don’t have to worry about making a math error or spending hours trying to look up historical crypto prices to compute the cost basis for each transaction.
If you need more time to file, you can request an automatic tax extension by completing Form 4868. However, this only provides more time to file taxes – you still need to pay taxes on the original April 15th deadline to avoid penalties and interest. If you can’t afford to pay taxes, you should reach out to the IRS to set up a payment plan.
What’s New in 2024?
The crypto market constantly evolves, and regulators are still playing catch up. While there are still plenty of open questions, the IRS continues to provide ad-hoc guidance on crypto tax matters. And it’s up to you to keep up to date with this advice to ensure that you’re properly computing, reporting, and paying your taxes each year.
Some recent IRS guidance includes:
- The IRS proposed guidance for crypto brokers – including decentralized finance (DeFi) exchanges – in August 2023. Under the new proposal, brokers would have to report their customers’ sales and exchanges of digital assets on Form 1099-DA. (IRS-2023-153)
- The IRS issued new guidance for staking income in August 2023. Under the new rules, cash method taxpayers must include staking rewards in their taxable income when they acquire possession of the rewards under the “dominion and control” standard.
- The IRS updated its guidance for NFT collectibles, saying it plans to use a “look-through analysis” to determine if an NFT is a collectible. If so, the NFT may be subject to the higher collectibles tax rate rather than the capital gains tax rate.
The IRS maintains a Digital Assets section on its website where you can find the latest updates to crypto rules and regulations, as well as frequently asked questions.
The IRS also posted its updated 2024 federal income and capital gains tax rates.
Income Tax Rates
|Married filing jointly
|$0 to $11,600
|$0 to $23,200
|$11,600 to $47,150
|$23,201 to $94,300
|$47,150 to $100,525
|$94,301 to $201,050
|$100,525 to $191,950
|$201,051 to $383,900
|$191,950 to $243,725
|$383,901 to $487,450
|$243,725 to $609,350
|$487,451 to $731,200
Capital Gains Tax Rates
|Married filing jointly
|$47,026 to $518,900
|$94,051 to $583,750
Streamlining Your Taxes in 2024
Many people treat taxes as something they worry about once a year in April. But you can maximize your tax savings and reduce stress levels by taking small actions throughout the year rather than waiting to make a big move in April.
The best starting point is crypto tax software. Rather than trying to keep up with new regulations and aggregate transactions by hand, ZenLedger or other crypto tax software solutions can automate the process and ensure you’re always up to date. You can always know your gains or losses each quarter to set aside money or take any necessary actions.
If you struggle with year-end payments, you may also want to consider making quarterly estimated payments, even if you’re not required. These payments can help you spread out your tax obligation over four payments rather than having to come up with a single year-end payment, which can reduce stress levels for those with considerable gains.
You can also implement tax-loss harvesting throughout the year to minimize your tax liabilities. While tax-loss harvesting regulations could soon change, you can follow the Wash Sale Rule to avoid the impact of these changes. Evidence from the stock market suggests that these moves could add a percentage point or more to your after-tax returns.
The Bottom Line
It’s never too early to start thinking about taxes. In fact, it should be something you think about regularly throughout the year! Using the tips in this guide, you can start 2024 on the right foot, ensure that you file on time, and take steps to minimize your tax obligations. But, more importantly, these steps can help you reduce stress later in the year!
If you want to streamline your taxes, ZenLedger can help aggregate transactions across wallets and exchanges, compute your capital gain or loss, and generate the tax forms you need to file. You can also regularly search for tax-loss harvesting opportunities within your portfolio and track your capital gains or losses throughout the year.
The above is for general info purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.