All states are different when it comes to regulating cryptocurrencies. Some states have always seen cryptocurrency as an investment and business opportunity while others don’t see it in such a positive light. Though state taxation is complicated, we’ll cover the basic you need to know to understand the best states for cryptocurrency taxes.
From cryptocurrency accounting to helping you understand the ins and outs of the cryptocurrency industry, our team at Founder’s CPA is here to guide you and answer your questions. Let’s look into the top five states for cryptocurrency businesses and investors. As a bonus, we’ll also talk about three states that aren’t ideal for cryptocurrency taxes.
If you’re unfamiliar with cryptocurrency taxes, let’s start with the basics. Federally, you must pay income and capital gains taxes on your cryptocurrency. For ordinary income taxes, this means that when you earn crypto, income is recognized using the fair market value of the asset at the time of receipt. This could include mining rewards, staking rewards, etc.
Capital gains taxes are incurred when you get rid of your cryptocurrency. You’ll experience either a gain or loss based on how much your crypto value has changed since you received it.
Some states also tax crypto, but this is dependent on the income tax laws where you live. The tax rate that you pay is determined on a state-by-state basis.
First, there is no state income tax in Wyoming. In the past few years, it has become a hub for cryptocurrency enthusiasts and businesses. The state has exempted crypto businesses from money transmission licenses and it’s authorized a Financial Technology Sandbox allowing businesses to try new technologies and products.
Another crypto-friendly state with no income tax, Texas is one of the most crypto-friendly states in the U.S. The Texas Department of Bank allowed state-chartered banks to offer cryptocurrency custody services. Plus, miners setting up businesses can utilize 10-year tax abatements, sales, tax credits, and workforce training.
Florida also has exempted crypto businesses from money transmission licenses. It also has a pilot program that enables businesses to pay state fees using cryptocurrency. Again, Florida is a state with no income tax.
Similar to Florida and Wyoming, any cryptocurrency businesses in New Hampshire are exempt from money transmission regulations. Capital gains are not taxed and their only state income tax is on dividends and interest.
Recently, Colorado announced that taxpayers can pay state taxes using cryptocurrency. However, it does have state income taxes, and income is taxed at a flat rate of 4.55%.
Here are three states that aren’t ideal for cryptocurrency:
Our team at Founder’s is here to help you understand the best state for cryptocurrency taxes ahead of tax season to helping your business get up and running. Take advantage of our free initial consultations to get started with our experts.
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