As cryptocurrency investments have become increasingly mainstream, staying compliant with both federal and New Jersey state tax requirements is more crucial than ever.
Whether you’re trading Bitcoin or collecting NFTs, understanding your tax obligations can help ensure you’re maintaining compliance — and avoiding costly penalties. Here’s a quick overview:
How do crypto taxes work?
The cryptocurrency tax landscape evolved significantly in 2024, bringing big changes to reporting requirements.
The IRS classifies cryptocurrencies and other virtual currencies as property. That means you’re required to report any cryptocurrency you receive as income and pay capital gains on any increase in value when sold.
In New Jersey, cryptocurrency profits are subject to state income taxation, with rates up to 10.75%. So if you sell your cryptocurrency holdings at a profit, these capital gains must be included in your total taxable income.
Additionally, income from cryptocurrency transactions is subject to federal taxation under IRS guidelines. Federal law is requiring stricter transaction reporting standards, replacing earlier cryptocurrency reporting forms with a new Form 1099-DA.
The updated requirements also mandate that exchanges report not only the proceeds from sales but also include cost basis data when such information is available.
That’s why it’s important to maintain accurate records of crypto transactions and report your income on both state and federal tax returns.
What triggers a taxable event?
Any action that involves acquiring or disposing of cryptocurrency can create a taxable event. This includes:
- Converting or trading one cryptocurrency to another (e.g., Bitcoin to Ethereum)
- Cashing out and selling cryptocurrency for U.S. dollars
- Making purchases using cryptocurrency or business transactions accepting cryptocurrency as payment for goods or services
- Receiving “free” cryptocurrency through airdrops or hard forks
Staying ahead of your cryptocurrency tax obligations
Whether you’re an experienced crypto investor or just getting started, proper tax planning and accurate reporting are essential. And while exchanges now provide more detailed reporting, you’re still obligated to:
- Report any taxable cryptocurrency transactions to the IRS
- Maintain your own comprehensive records of transactions across different platforms and digital wallets
- Keep track of trades
- Maintain documentation of cost basis for any digital assets
To stay compliant under these new requirements, the tax pros at Magone & Company can help you accurately navigate your crypto reporting. Give us a call today at (973) 301-2300 for assistance.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances