Crypto taxation has become an essential aspect of worldwide regulation as governments seek to generate revenues from the industry. The Internal Revenue Service (IRS) seeks to tighten crypto tax remittance from crypto users who fail to pay taxes. Our detailed guide will tell you all you need to know about cryptocurrency taxation in Texas.
Taxes and Texas
Texas is one of the most crypto-friendly states and technology hubs globally, ranking second for locations with Bitcoin ATMs. The Lone Star State is famous for allowing cryptocurrency mining activities and encouraging usage; thus, there are no state income taxes on crypto. However, the IRS classifies cryptocurrencies as properties, and crypto users across the United States must report all crypto activities and pay applicable taxes.
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.
Reporting Crypto Taxes in Texas
The following information is required to fill out crypto tax returns in Texas:
- Name of the cryptocurrency.
- Date acquired.
- Date sold, traded, or otherwise disposed of it.
- Proceeds or sales price.
- Cost basis.
- Total gain or loss.
Traders must aggregate all crypto transactions from a trusted crypto trading platform and wallet. This allows them to capture the taxable transactions and classify each based on the f1040 rules. The next step is to complete IRS Form 8949 (f8949), which is classified into cost basis, sale price, and loss/gain for each sale. The totals are then reported via the form f1040 Schedule D. At the same time, crypto received as compensation for providing crypto-related services is reported on Schedule 1 or Schedule C for hobby and business, respectively.
Texas currently has no clear stance on the status of virtual currency sales under the state sales tax, but federal capital gains tax rates apply to the difference between purchase and sale prices. This means the tax changes according to federal rates regardless of the state’s non-tax policy. Brokers are required to submit tax returns via form 1099-B.
Crypto traders and users in Texas and other states naturally seek legal ways to reduce the final taxes paid on their virtual assets.
Texas residents, however, have the advantage of no state tax rules, which removes the burden of income taxes for crypto holders. Other ways include reducing the capital gains taxes by holding crypto assets for over 12 months. This qualifies the holder for lower capital gains taxes based on the 2024 rate. Offsetting crypto losses against capital gains or income also reduces individuals’ and corporations’ final applicable tax amount while leaving them the opportunity to reinvest in the crypto market.
Tax Implications for Crypto Transactions in Texas
Trisha Turner, senior advisor at the IRS Office of the Digital Assets Initiative, at a recent panel at the New York University School of Professional Studies 16th Annual Tax Controversy Forum in Times Square, New York, said that final crypto regulations by the IRS would “require gross proceeds reports for transactions taking place on or after January 1, 2025.”
Sales tax may apply to goods and services bought with cryptocurrency if such goods are taxable. Where this happens, the tax rate depends on the goods or services procured, not the instances of crypto use. You can use this tax tool and others like it to calculate applicable sales tax in Texas. Taxes may also apply to properties paid with crypto in Texas. There are no state property taxes, but county and city taxes apply to properties bought within the state.
For crypto estates, Texans can pass down any amount of cryptocurrencies to their heirs without paying any tax at the state level. Federal taxes may apply to crypto estates with substantial amounts. Finally, companies registered, incorporated, or conducting business in Texas may be subject to the franchise tax.
Texas Tax Rules and Crypto Mining
Texas is an oil-rich state with tons of gas flared annually. This provided an unlikely solution for crypto miners looking for less expensive energy sources. Crypto mining, especially for Bitcoin and Ethereum (before the merge), is an energy-intensive activity that could prove costly for miners connected to the grid. High electricity tariffs could wipe off mining profits and leave individuals and firms unprofitable.
However, Texas has become a destination for crypto miners who leveraged the severance tax exemption provided under the HB 591 Texas law, which allows energy producers to convert vented and flared gas into electricity for crypto mining. They can legally avoid the 7.5% severance tax on the market value of natural gas under this provision. The implication is a potential rise in profit, as seen by Riot Blockchain’s earnings of around $9.5 million in 2022 after they supplied electricity to the grid during periods of high demand.
Enjoy Tax-Free Trading in Texas
Leverage Texas’ tax rules and enjoy tax-free transactions when you buy, sell, or exchange cryptocurrencies via reliable platforms. Stay updated with the crypto tax rules for 2025 to know your stand with the U.S. Treasury as a crypto trader/investor.
