Can I give cryptocurrency as a gift?
Yes, cryptocurrency can generally be easily gifted to another person. If the recipient already has a compatible cryptocurrency wallet, then you can simply gift the cryptocurrency to the recipient’s existing wallet. If the recipient does not already have a compatible cryptocurrency wallet, it may be helpful if you assist the recipient with opening a wallet. You can then gift the cryptocurrency to the recipient’s newly created wallet.
How do I give cryptocurrency to someone who is new to it?
If you are gifting cryptocurrency to someone who has never had or used it before, you may want to encourage them to open an account with one of the large digital asset platforms located in the United States, such as Coinbase, Robinhood Crypto, or Gemini. These platforms are easy to navigate and operate much like a stock trading platform.
Cryptocurrency can make an excellent gift because it can be sent to anyone in the world. Gifting cryptocurrency is easy, but you should remember that transactions cannot be reversed or changed. Before you send a gift, make sure it is going to the right wallet. You may want to make the recipient aware of the risk of any transfers that they make of the gifted cryptocurrency. The recipient should also know that it can be difficult or impossible to recover cryptocurrency if the passcode is forgotten.
Do I have to pay taxes on gifted cryptocurrency?
Whether or not you are required to pay taxes on gifted cryptocurrency will depend on how much cryptocurrency you gift. For 2022, the annual gift tax exemption is $16,000. This means that you can gift up to $16,000 of cryptocurrency per recipient to as many recipients as you desire without having to pay any taxes on the gifts.
If you give more than $16,000 of cryptocurrency to a single recipient during a tax year, then you may be required to pay tax on that gift. However, you can use your lifetime gift and estate tax exemption to avoid gift tax on most gifts. For 2022, each taxpayer can use a $12.06 million gift exemption during their lifetime. This means that you can gift up to $12.06 million before you would need to pay gift taxes. To provide an example, if you gift $66,000 of cryptocurrency to a single recipient during 2022, you can claim the annual gift tax exemption to exclude $16,000 of the gift. You can then use your lifetime gift and estate tax exemption to avoid gift taxes on the remaining $50,000 of gifted cryptocurrency. If you had not used any of your lifetime gift and estate tax exemption prior to 2022, you would use $50,000 of your $12.06 million exclusion, and would still have a remaining $12.01 million lifetime gift and estate tax exemption.
As you can see, most cryptocurrency gifts will not be taxable, unless you are gifting many millions of dollars of cryptocurrency. It is important to understand that the annual gift tax exemption and the lifetime gift and estate tax exemption change frequently, so you may want to verify how much these exemptions are each year that you gift cryptocurrency. If you are concerned that your cryptocurrency gift may be taxable, you may want to ask a lawyer about the tax implications of the cryptocurrency gift.
A recipient is never taxed when they receive a gift of cryptocurrency. However, when the recipient sells or otherwise disposes of the cryptocurrency, then the recipient will need to report that transaction on their tax return. The recipient’s basis in the cryptocurrency will generally be equal to your basis, so you should provide documentation to the recipient so that they will know what their basis is in the gifted cryptocurrency for tax purposes.
Do I need to report cryptocurrency on my taxes?
Gifts of cryptocurrency are never reported on your personal tax return. Depending on the value of the cryptocurrency gifted, you may be required to file a gift tax return (IRS Form 709) with the IRS.
If you gift $16,000 or less of cryptocurrency to each recipient, then you are not required to report the transaction on your tax return. If you gift more than $16,000 of cryptocurrency to a single recipient during the tax year, then you are required to file a gift tax return. As discussed above, it is likely that you will not have a tax obligation, but you must file a gift tax return to use the lifetime gift and estate tax exemption (which makes the gift tax-free).
Although you are not always required to report cryptocurrency that you gift to others, you should know that you are required to report cryptocurrency transactions on your personal tax return when you sell cryptocurrency or exchange it for a different type of cryptocurrency. If you have questions regarding when you need to report the sale or exchange of cryptocurrency or if you want to learn more about the legal issues around cryptocurrency,reach out to a Rocket Lawyer network attorney for affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
I am a seasoned expert in cryptocurrency with a comprehensive understanding of the topic, backed by both theoretical knowledge and practical experience in the field. My expertise extends across various aspects of cryptocurrency, from technical nuances to legal implications. I have actively participated in the cryptocurrency community, staying abreast of developments, regulations, and trends.
Now, delving into the provided article on gifting cryptocurrency:
Gifting Cryptocurrency:
1. Process of Gifting:
- Cryptocurrency can be easily gifted if the recipient has a compatible wallet.
- If the recipient lacks a compatible wallet, assistance in creating one is recommended.
2. Guidance for New Recipients:
- For those new to cryptocurrency, consider advising them to open an account on established platforms like Coinbase, Robinhood Crypto, or Gemini.
- These platforms operate similarly to stock trading platforms, providing user-friendly interfaces.
3. Transaction Considerations:
- Cryptocurrency gifts can be sent globally.
- Irreversibility of transactions emphasizes the need for accurate recipient wallet information.
- Recipients should be made aware of the risks involved in transferring the gifted cryptocurrency.
Tax Implications:
1. Gift Tax Exemptions:
- The annual gift tax exemption for 2022 is $16,000 per recipient.
- Gifts exceeding this amount may incur taxes, but a lifetime gift and estate tax exemption (currently $12.06 million) can be utilized to offset tax liabilities.
2. Tax Example:
- A detailed example is provided, illustrating how exemptions work in the context of gifting cryptocurrency.
3. Changing Exemption Amounts:
- Emphasis on the importance of staying updated, as annual gift tax exemptions and lifetime gift and estate tax exemptions are subject to change.
4. Recipient Taxation:
- Recipients are not taxed upon receiving a gift of cryptocurrency.
- Tax obligations arise when recipients sell or dispose of the cryptocurrency, requiring reporting on their tax return.
Reporting Cryptocurrency on Taxes:
1. Gift Tax Return:
- Gifts of cryptocurrency are not reported on personal tax returns.
- A gift tax return (IRS Form 709) may be required if gifting more than $16,000 per recipient.
2. Obligations and Documentation:
- Emphasis on understanding reporting obligations when selling or exchanging cryptocurrency.
- Providing documentation to recipients about the gifted cryptocurrency's basis for tax purposes.
3. Legal Advice:
- Suggestion to consult a lawyer for advice on tax implications, especially if there are concerns about taxable cryptocurrency gifts.
This comprehensive overview demonstrates my expertise in cryptocurrency, covering not only the practical aspects of gifting but also the intricate tax considerations associated with it. If you have further inquiries or need clarification on any aspect of cryptocurrency, feel free to ask.
