No matter where you live in the United States, you’ll owe federal tax on your crypto transactions. However, because states also levy taxes, there are locales that are more crypto-friendly than others. In what follows, we’ll go over the states that are most attractive when it comes to crypto taxation, particularly for major crypto miners.
Of course, any state that doesn’t collect personal and/or corporate income tax will be attractive to investors or miners seeking to lower their tax liability. However, three states have stood out for actively recruiting crypto businesses with preferential tax treatment.
Most Crypto-Friendly States
Wyoming
Wyoming doesn’t collect any personal or corporate income tax, but beyond that, it’s also working to attract crypto traders and businesses by developing friendly regulatory frameworks for digital assets. For example, it has passed a charter for banks that deal primarily with digital assets.[1] This made it possible for Kraken Bank to establish itself in the state. Additionally, Wyoming is the first state to recognize a DAO as a legal entity, granting DAOs credibility and paving the way for clearer guidance about how DAOs would be taxed.
Wyoming also has a sales tax exemption for mining equipment—provided the buyer has mined over $5 million of coins.
Kentucky
Kentucky has a flat personal income tax rate of 5%, which is fairly average among states. Its business tax rates range from 4-6%. However, Governor Andy Beshear would like to attract more bitcoin miners to the energy-rich state with an ailing coal industry.
Recent legislation extended clean-energy focused tax breaks to miners who invest more than $1 million in equipment. Another bill introduced several other sales and excise tax breaks.[2]
Texas
Texas has no personal tax and cheap electricity, so it’s no wonder it has the fourth-largest volume of bitcoin mining in the country. Its gross receipts tax could be economically damaging to companies, but because the state is eager to grow the crypto mining industry, it is offering a 10-year tax abatement, sales tax exemptions, and workforce training for major mining operations that set up shop in the Lone Star State.[3]
States without personal income tax
Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming
States without corporate income tax
How to establish residency for tax purposes
Be aware that for individuals, changing residency is not as simple as simply announcing you live in a new place. Each state’s criteria for establishing domicile are slightly different, but most will require you to spend a significant amount of time in the new state. When investigating domicile validity, state tax agencies will look for the following, among other criteria:
Change of mailing address
Home rental or ownership
Proof of time spent in the state
Change of driver’s license and vehicle registration
Closing bank accounts in old state and opening accounts in new state
Change of voter registration
Location of employment
California, New Jersey, New York, and Massachusetts have what is called the “183 day rule.” This means that if you spent 183 or more days in their state you are considered a dual resident and must pay personal income tax in their state, regardless of where the income was earned. This can result in dual taxation.
Is Puerto Rico a crypto tax haven?
Puerto Rico has become a popular destination for U.S. taxpayers seeking to lower their taxes. Because Puerto Rico is an unincorporated U.S. territory, Americans do not need a visa or passport to travel there, and it is relatively easy to establish residency and/or move a corporation.[4]
If someone becomes a bona fide Puerto Rico resident, they can receive considerable tax breaks: individuals pay no capital gains taxes and corporations receive just a 4% federal income tax (compared to 21% in the states), among other incentives.
As you may imagine, because of the huge tax breaks on the line, the IRS highly scrutinizes crypto investors who claim to have established residency in Puerto Rico.[5] Prospective residents must file Form 8898 to update their residency and meet the following criteria:
Be present in Puerto Rico for a significant amount of time
Have their “tax home” in Puerto Rico
Have “closer connections” to Puerto Rico than any other location
The last of these is the most challenging to prove, but essentially the IRS will look for proof that you legitimately live in Puerto Rico and participate in its society.[6] The IRS evaluates this through many of the criteria listed in the previous section. Puerto Rico also requires those taking advantage of these tax breaks to donate $10,000 to charity per year.
FAQs
Arizona, Florida, Wyoming, and Texas are considered crypto tax friendly states due to their favorable tax policies, exemptions, and incentives for crypto businesses, while states like California, Hawaii, and New York have high state taxes and regulations that may be less favorable for individuals and the crypto ...
What states are best for crypto taxes? ›
What states have no crypto tax? Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income taxes (although New Hampshire and Tennessee tax interest and dividends while Washington taxes capital gains).
How do I avoid taxes on crypto USA? ›
9 Ways to Legally Avoid Paying Crypto Taxes
- Buy Items on BitDials.
- Invest Using an IRA.
- Have a Long-Term Investment Horizon.
- Gift Crypto to Family Members.
- Relocate to a Different Country.
- Donate Crypto to Charity.
- Offset Gains with Appropriate Losses.
- Sell Crypto During Low-Income Periods.
Several countries have no crypto tax, allowing individuals to buy, mine, and trade crypto without tax implications. Some notable examples include Belarus, Bermuda, Cayman Islands, El Salvador, Georgia, Germany, Hong Kong, Malaysia, Malta, Puerto Rico, Singapore, Slovenia, Switzerland, and the United Arab Emirates.
Do you pay crypto tax in Florida? ›
While federal regulations apply across the United States, Florida doesn't impose state income tax. This means you won't have to pay state-level taxes on your Bitcoin gains. However, it's essential to stay informed about any changes in state regulations that could impact your tax obligations.
Which U.S. state is the most crypto-friendly? ›
Arizona, Florida, Wyoming, and Texas are considered crypto tax friendly states due to their favorable tax policies, exemptions, and incentives for crypto businesses, while states like California, Hawaii, and New York have high state taxes and regulations that may be less favorable for individuals and the crypto ...
Which states have no capital gains tax? ›
There are only eight states that do not tax capital gains:
- Alaska.
- Florida.
- Nevada.
- New Hampshire*
- South Dakota.
- Tennessee.
- Texas.
- Wyoming.
There is no way to legally avoid taxes when cashing out cryptocurrency. However, strategies like tax-loss harvesting can help you reduce your tax bill legally. Converting crypto to fiat currency is subject to capital gains tax. However, simply moving cryptocurrency from one wallet to another is considered non-taxable.
How long do you have to hold crypto to avoid capital gains? ›
If you sell cryptocurrency after owning it for more than a year, you'll pay long-term capital gains.
What is the new tax law for crypto? ›
The rule introduces a new tax reporting form called Form 1099-DA, meant to help taxpayers determine if they owe taxes, and would help crypto users avoid having to make complicated calculations to determine their gains, according to the Treasury Department.
Switzerland, Malta, Singapore, Estonia, Germany, Japan, Portugal, and the UAE are some of the best places to live and work in the blockchain era. These countries offer supportive regulations, high quality of life, and strong economies, making them attractive destinations for crypto enthusiasts.
Which country is best for crypto taxes? ›
10 Most Crypto Tax-Friendly Countries in 2024
- Singapore. ...
- Switzerland. ...
- Malta. ...
- Malaysia. ...
- Germany. ...
- Belarus. ...
- Puerto Rico. ...
- Cayman Islands. The Cayman Islands is renowned as a tax haven due to its favorable tax policies for individuals and businesses, including those involved in cryptocurrency activities.
The IRS does not require you to report your crypto purchases on your tax return if you haven't sold or otherwise disposed of them. Like buying and holding onto shares of stock, the tax event occurs when you sell.
Is Florida a crypto friendly state? ›
Florida's anti-CBDC stance
In 2022, Florida passed another piece of legislation supporting crypto activities for money services businesses. Florida was amongst the first states to approve legislation to exclude central bank digital currency (CBDC) from the definition of money for business contract purposes.
Does Texas tax crypto? ›
Taxes and Texas
Taxes typically apply to crypto-related income and capital gains based on federal tax rules. Reporting crypto and crypto-related activities in Texas via the U.S. Individual Income Tax Return Form 1040 (f1040) requires careful filing to capture crypto transactions for the tax year accurately.
Does Arizona tax crypto? ›
Income is generally taxable regardless of its source, noted the Taxpayer Advocate Service. “As such, digital asset transactions are taxable just like 'traditional' transactions involving money for goods or services, or an exchange of property," the advocate service said.
Do you pay state taxes on cryptocurrency? ›
Capital gains taxes are applied at both the federal and state (where applicable) level. They can be long-term or short-term, and how long you've held your crypto affects how much tax you'll end up owing.
Is crypto capital gains taxed in Texas? ›
Texas does not have a state capital gains tax, but capital gains from your crypto are subject to the regular federal tax rates. If you have capital losses, federal rules allow you to offset your gains with those losses.
Does California tax crypto gains? ›
Digital Currency is Taxed as Property in California
That means that coins are subject to “capital gains taxes.” While holding your coins, you may not realize the increase in their value as profit.
Does the IRS tax you for crypto? ›
If you receive cryptocurrency from an airdrop following a hard fork, your basis in that cryptocurrency is equal to the amount you included in income on your Federal income tax return. The amount included in income is the fair market value of the cryptocurrency when you received it.
