California's Approach to Taxing Cryptocurrency

by
Ajith Chandan
Reviewed by
min read
Last updated:

Whether you're a crypto enthusiast, Investor or a business owner you might have heard of the term CRYPTO TAXES!

That's right, A term that makes every wallet cringe! 

In the tech-savvy and economically vibrant state of California, things take an intriguing turn when it comes to Cryptocurrency Taxes.

In this guide we’ll walk you through the complexities of capital gains to the impact on income tax in California, and what every Californian should know when it comes to dealing with crypto taxes in the Golden State.

California views Cryptocurrencies as “PROPERTY”

In California, when it comes to Digital currency, it's treated more like property than cash. Cryptocurrency follows similar tax rules as securities and other financial assets, but at its core, it's considered a form of property. This means that holding coins could lead to "capital gains taxes." The increase in their value isn't seen as profit while you're holding onto them, but the moment you sell, you're looking at taxable gains.

Income Tax in the Golden State

California operates on a progressive income tax system, where rates range from a modest 1% to a substantial 12.3%, depending on your income level. If you earn cryptocurrency as income, it falls under the purview of taxation. To determine your specific tax rate, California provides an online income tax calculator. Remember, this calculation includes all sources of income, not just cryptocurrency.

Decoding California's Sales and Use Tax 

The California Department of Tax and Fee Administration sheds light on the intricacies of sales and use tax as it pertains to cryptocurrency transactions. According to Reference #F22-12-084, dated January 5, 2023, crypto transactions, in themselves, do not trigger sales and use tax. Since crypto transactions do not involve the exchange of tangible personal property, they don't fall under the category of a "sale" according to California law. Therefore, exchanges of crypto alone don't trigger a taxable event leading to the recognition of gain or loss.

However, when cryptocurrency is exchanged for tangible goods, it qualifies into a taxable event, subjecting the transaction to sales and use tax. The base state sales tax rate is 7.25%, but with local taxes factored in, it can reach as high as 10.25% in certain areas.

Corporate Tax: A Trio of Obligations

For businesses incorporated, registered, or operating in California, the tax trifecta consists of Corporate Income Tax, property, and payroll taxes. Thresholds for taxation, as of 2023, include California sales exceeding $711,538, real and tangible personal property surpassing $71,154, and payroll compensation exceeding $71,154. 

Here's the catch: even if your California sales, property, and payroll are below the stated amounts but still more than 25% of your overall totals, you'll still owe taxes to California. For detailed information and examples, refer to California's Doing Business in California webpage.

Now, here's a silver lining: if your company incurs business expenses, it might be possible to deduct those expenses to reduce your business's overall tax liability.

Whether your company deals in crypto or not, the rules remain the same.

Corporate Income Tax

California imposes a corporate income tax on businesses, and if your business receives income in the form of cryptocurrency, it needs to be reported. The standard rate is 8.84% for most corporations, with banks and financial corporations facing a slightly higher rate of 10.84%.

Property Tax: Real & Personal Property Tax Perspectives

Businesses in California are subject to property tax on both real property (land and buildings) and personal property used in the business (machinery or equipment, including mining rigs). The tax rate for both is capped at 1% of the assessed value. Fortunately, businesses with personal property valued at less than $100,000 are generally exempt from filing a property tax return.

Payroll Tax: California Employers' Responsibilities in 2024

In California, employers have the duty of covering various payroll taxes. These include State Disability Insurance (SDI), Employment Training Tax (ETT), and Unemployment Insurance Tax (UI). On top of that, although not classified as a business tax, employers are required to deduct personal income tax from their employees' wages.

For the year 2024, the UI 1.5 percent to 6.2 percent with taxable wage limit is $7000 per employee annually & ETT tax stands at 0.1 percent taxable wage limit is $7000 per employee annually, as of January 1, 2024 SDI withholding tax rate is at 1.1% with Senate Bill 951 removing the taxable wage limit and maximum withholdings for each employee subject to SDI contributions.

Capital Gains Tax: Profits & Losses in Crypto

Selling crypto for more than its acquisition cost triggers the capital gains tax. In California, there's no separate or lower rate for this; instead, crypto gains are taxed as ordinary income, aligning with your income bracket's tax rates. On a positive note, if you experience capital losses, California allows you to offset those losses against your gains.

Estate Tax Exemption in California

In California, there's no estate tax, giving you a tax break when passing on your crypto assets. Your heirs get the full inheritance without any state-level estate tax. However, it's important to note that significant estates might still be liable for federal estate tax.

Good Record-Keeping: The Key to Tax Clarity

Kryptos is your Personal Crypto Tax Assistant that simplifies crypto taxes. Not only does it effortlessly calculate your crypto taxes such as capital gains, losses, income, and expenses, but it also provides features to optimize your tax position.

Track your unrealized gains and losses with Kryptos, gaining insights into when to HODL and when to make decisions about your investments.

Kryptos offers support for various cost basis methods, including FIFO, LIFO, and HIFO. You can customize these settings to see how they impact your crypto taxes.

Beyond saving you from hours of spreadsheet work and calculations, Kryptos also cuts down the time spent on form-filling. For US investors, Kryptos generates pre-filled forms ready for submission to the IRS or your tax portal. These include - IRS Form 8949 & Schedule D, TurboTax Report, Tax Act Report, Complete Tax Report. 

Make your crypto tax experience more efficient with Kryptos.

Curious about your crypto tax bill?

The crypto tax you owe is influenced by your yearly income and the duration you've held your crypto. Typically, the higher your annual income, the greater the percentage you'll pay in Capital Gains Tax. Check out the ultimate USA crypto tax guide to learn how to calculate your crypto taxes.

FAQs

1. How does California tax cryptocurrency income?

In California, cryptocurrency income is subject to the state's progressive income tax system, with rates ranging from 1% to 12.3%. To determine your applicable tax rate, use California's online income tax calculator, considering all sources of income, not just crypto.

2. Are crypto transactions subject to sales and use tax in California?

As of January 5, 2023, crypto transactions alone do not trigger sales and use tax in California. However, when crypto is exchanged for tangible personal property, it qualifies as a "sale," making the transaction subject to sales and use tax.

3. What are the tax obligations for incorporated businesses in California that deal with crypto?

Incorporated businesses in California must settle sales, property, and payroll taxes if they exceed specified thresholds. Even if sales, property, and payroll are below the thresholds but exceed 25% of overall totals, taxes are owed. Deducting business expenses may help reduce tax liability.

4. How is cryptocurrency income taxed for businesses in California?

Businesses in California receiving income in cryptocurrency are subject to corporate income tax. The standard rate for most corporations is 8.84%, with banks and financial corporations facing a slightly higher rate of 10.84%.

5. Is there an estate tax on cryptocurrency assets in California?

No, California does not impose an estate tax on cryptocurrency assets, providing a tax break when passing on crypto holdings. However, significant estates may still be subject to federal estate tax.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position/stance, you should always consider seeking independent legal, financial, taxation or other advice from professionals. Kryptos is not liable for any loss caused by the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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California's Approach to Taxing Cryptocurrency

By
Ajith Chandan
On

Whether you're a crypto enthusiast, Investor or a business owner you might have heard of the term CRYPTO TAXES!

That's right, A term that makes every wallet cringe! 

In the tech-savvy and economically vibrant state of California, things take an intriguing turn when it comes to Cryptocurrency Taxes.

In this guide we’ll walk you through the complexities of capital gains to the impact on income tax in California, and what every Californian should know when it comes to dealing with crypto taxes in the Golden State.

California views Cryptocurrencies as “PROPERTY”

In California, when it comes to Digital currency, it's treated more like property than cash. Cryptocurrency follows similar tax rules as securities and other financial assets, but at its core, it's considered a form of property. This means that holding coins could lead to "capital gains taxes." The increase in their value isn't seen as profit while you're holding onto them, but the moment you sell, you're looking at taxable gains.

Income Tax in the Golden State

California operates on a progressive income tax system, where rates range from a modest 1% to a substantial 12.3%, depending on your income level. If you earn cryptocurrency as income, it falls under the purview of taxation. To determine your specific tax rate, California provides an online income tax calculator. Remember, this calculation includes all sources of income, not just cryptocurrency.

Decoding California's Sales and Use Tax 

The California Department of Tax and Fee Administration sheds light on the intricacies of sales and use tax as it pertains to cryptocurrency transactions. According to Reference #F22-12-084, dated January 5, 2023, crypto transactions, in themselves, do not trigger sales and use tax. Since crypto transactions do not involve the exchange of tangible personal property, they don't fall under the category of a "sale" according to California law. Therefore, exchanges of crypto alone don't trigger a taxable event leading to the recognition of gain or loss.

However, when cryptocurrency is exchanged for tangible goods, it qualifies into a taxable event, subjecting the transaction to sales and use tax. The base state sales tax rate is 7.25%, but with local taxes factored in, it can reach as high as 10.25% in certain areas.

Corporate Tax: A Trio of Obligations

For businesses incorporated, registered, or operating in California, the tax trifecta consists of Corporate Income Tax, property, and payroll taxes. Thresholds for taxation, as of 2023, include California sales exceeding $711,538, real and tangible personal property surpassing $71,154, and payroll compensation exceeding $71,154. 

Here's the catch: even if your California sales, property, and payroll are below the stated amounts but still more than 25% of your overall totals, you'll still owe taxes to California. For detailed information and examples, refer to California's Doing Business in California webpage.

Now, here's a silver lining: if your company incurs business expenses, it might be possible to deduct those expenses to reduce your business's overall tax liability.

Whether your company deals in crypto or not, the rules remain the same.

Corporate Income Tax

California imposes a corporate income tax on businesses, and if your business receives income in the form of cryptocurrency, it needs to be reported. The standard rate is 8.84% for most corporations, with banks and financial corporations facing a slightly higher rate of 10.84%.

Property Tax: Real & Personal Property Tax Perspectives

Businesses in California are subject to property tax on both real property (land and buildings) and personal property used in the business (machinery or equipment, including mining rigs). The tax rate for both is capped at 1% of the assessed value. Fortunately, businesses with personal property valued at less than $100,000 are generally exempt from filing a property tax return.

Payroll Tax: California Employers' Responsibilities in 2024

In California, employers have the duty of covering various payroll taxes. These include State Disability Insurance (SDI), Employment Training Tax (ETT), and Unemployment Insurance Tax (UI). On top of that, although not classified as a business tax, employers are required to deduct personal income tax from their employees' wages.

For the year 2024, the UI 1.5 percent to 6.2 percent with taxable wage limit is $7000 per employee annually & ETT tax stands at 0.1 percent taxable wage limit is $7000 per employee annually, as of January 1, 2024 SDI withholding tax rate is at 1.1% with Senate Bill 951 removing the taxable wage limit and maximum withholdings for each employee subject to SDI contributions.

Capital Gains Tax: Profits & Losses in Crypto

Selling crypto for more than its acquisition cost triggers the capital gains tax. In California, there's no separate or lower rate for this; instead, crypto gains are taxed as ordinary income, aligning with your income bracket's tax rates. On a positive note, if you experience capital losses, California allows you to offset those losses against your gains.

Estate Tax Exemption in California

In California, there's no estate tax, giving you a tax break when passing on your crypto assets. Your heirs get the full inheritance without any state-level estate tax. However, it's important to note that significant estates might still be liable for federal estate tax.

Good Record-Keeping: The Key to Tax Clarity

Kryptos is your Personal Crypto Tax Assistant that simplifies crypto taxes. Not only does it effortlessly calculate your crypto taxes such as capital gains, losses, income, and expenses, but it also provides features to optimize your tax position.

Track your unrealized gains and losses with Kryptos, gaining insights into when to HODL and when to make decisions about your investments.

Kryptos offers support for various cost basis methods, including FIFO, LIFO, and HIFO. You can customize these settings to see how they impact your crypto taxes.

Beyond saving you from hours of spreadsheet work and calculations, Kryptos also cuts down the time spent on form-filling. For US investors, Kryptos generates pre-filled forms ready for submission to the IRS or your tax portal. These include - IRS Form 8949 & Schedule D, TurboTax Report, Tax Act Report, Complete Tax Report. 

Make your crypto tax experience more efficient with Kryptos.

Curious about your crypto tax bill?

The crypto tax you owe is influenced by your yearly income and the duration you've held your crypto. Typically, the higher your annual income, the greater the percentage you'll pay in Capital Gains Tax. Check out the ultimate USA crypto tax guide to learn how to calculate your crypto taxes.

FAQs

1. How does California tax cryptocurrency income?

In California, cryptocurrency income is subject to the state's progressive income tax system, with rates ranging from 1% to 12.3%. To determine your applicable tax rate, use California's online income tax calculator, considering all sources of income, not just crypto.

2. Are crypto transactions subject to sales and use tax in California?

As of January 5, 2023, crypto transactions alone do not trigger sales and use tax in California. However, when crypto is exchanged for tangible personal property, it qualifies as a "sale," making the transaction subject to sales and use tax.

3. What are the tax obligations for incorporated businesses in California that deal with crypto?

Incorporated businesses in California must settle sales, property, and payroll taxes if they exceed specified thresholds. Even if sales, property, and payroll are below the thresholds but exceed 25% of overall totals, taxes are owed. Deducting business expenses may help reduce tax liability.

4. How is cryptocurrency income taxed for businesses in California?

Businesses in California receiving income in cryptocurrency are subject to corporate income tax. The standard rate for most corporations is 8.84%, with banks and financial corporations facing a slightly higher rate of 10.84%.

5. Is there an estate tax on cryptocurrency assets in California?

No, California does not impose an estate tax on cryptocurrency assets, providing a tax break when passing on crypto holdings. However, significant estates may still be subject to federal estate tax.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position/stance, you should always consider seeking independent legal, financial, taxation or other advice from professionals. Kryptos is not liable for any loss caused by the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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