Washington Crypto Tax Services

Do I Owe Crypto Tax in Washington? (Summary)

Washington offers significant tax advantages for crypto investors, but federal obligations remain. Here are the key facts:

• No State Income Tax: Washington does not tax personal income, including crypto gains

• Capital Gains Tax Exclusion: Washington's 7%/9.9% capital gains tax currently excludes cryptocurrency

• Federal Tax Applies: All Washington residents must report and pay federal taxes on crypto transactions

• Monitor for Changes: The crypto exclusion could change through legislation or regulatory interpretation

• B&O Tax: Crypto businesses may be subject to Business & Occupation tax

 

Bottom line: Washington residents owe federal crypto tax but currently no state income or capital gains tax on cryptocurrency.

 

The Nation's #1 Crypto Adoption State—With No State Income Tax

Washington State consistently ranks #1 in the nation for cryptocurrency adoption per capita. With Microsoft, Amazon, and a thriving tech ecosystem concentrated in the Seattle-Bellevue corridor, Washington's population was among the earliest and most enthusiastic crypto adopters.

Washington's Tax Advantage

Washington has no state income tax, meaning crypto gains aren't taxed at the state level as ordinary income. The state's separate capital gains tax—which could potentially apply to crypto—currently excludes cryptocurrency from its definition of covered assets.

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At Monaco CPA, we provide remote crypto tax services to Washington residents throughout the state. While you won't owe state income tax on your crypto gains, federal compliance is still essential—and increasingly complex with the 2025 regulatory changes.

 

Washington State Capital Gains Tax (Important!)

While Washington has no general income tax, in 2021 the state enacted a capital gains tax on the sale of long-term assets. Understanding this tax and its crypto exclusion is essential for Washington investors.

2025 Capital Gains Tax Rates (SB 5813)

Effective January 1, 2025, Washington's capital gains tax uses tiered rates:

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Cryptocurrency Exclusion

Washington's capital gains tax specifically defines covered assets as stocks, bonds, and similar financial instruments. Cryptocurrency is currently excluded from this definition. However:

• This exclusion could change through legislative action

• The Department of Revenue could issue guidance changing this interpretation

• Washington crypto investors should monitor developments closely

 

Key Differences from Federal Capital Gains Rules

Washington's capital gains tax has unique rules that differ significantly from federal treatment:

• Long-term only: Only applies to assets held more than one year

• Short-term losses cannot offset long-term gains

• No negative carryover: If Washington capital gains are below zero, no carryforward is permitted

• Pre-2022 losses: Losses from before January 1, 2022 cannot be used

 

What Washington Residents Still Owe

Even with Washington's favorable state tax treatment, federal obligations apply to all crypto investors.

Federal Income Tax

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2025 Federal Compliance Requirements

• Revenue Procedure 2024-28: Wallet-by-wallet cost basis tracking effective January 1, 2025

• Form 1099-DA: Custodial brokers report gross proceeds for 2025 transactions; cost basis mandatory for assets acquired after January 1, 2026

• Form 8949: Required for reporting all crypto sales and exchanges

• $3,000 Capital Loss Limit: Federal limit on deducting capital losses against ordinary income with unlimited carryforward

 

Taxable Crypto Events

Every crypto transaction can trigger federal tax obligations. Understanding taxable events helps you plan transactions and maintain proper records.

Taxable Events

• Selling cryptocurrency for USD or other fiat currency

• Trading one cryptocurrency for another

• Using crypto to purchase goods or services

• Receiving crypto as payment (ordinary income at FMV)

• Mining rewards when received (ordinary income)

• Staking rewards when you have dominion and control

• Airdrops and hard forks when received

 

Non-Taxable Events

• Buying crypto with USD

• Transferring crypto between your own wallets

• Gifting crypto (gift tax rules may apply for large gifts)

• Donating crypto to qualified charities

 

Washington Business & Occupation Tax

While individuals don't owe state tax on crypto gains, businesses may have B&O tax obligations.

B&O Tax on Crypto Activities

Washington's Department of Revenue has issued guidance (Interim Statement 2019) on crypto business activities:

• Mining: Subject to B&O tax under "service and other activities" classification

• Standard Rate: 1.5% of gross income (increasing to 2.1% for businesses over $5M revenue effective October 2025)

• Crypto Payments: Retail sales tax applies when crypto is used to purchase taxable goods/services

 

NFT Sales

Washington was the first state to clarify that NFT sales are subject to standard sales tax treatment when they constitute sales of digital goods or services.

 

Tax Planning for Washington Residents

Washington's favorable state tax treatment creates unique planning opportunities, but federal strategies remain important.

Tax-Loss Harvesting

Cryptocurrency is not subject to wash sale rules under current federal law. You can sell crypto at a loss and immediately repurchase to realize the loss while maintaining your position. This is particularly valuable for offsetting gains.

 

Long-Term Holding

Holding crypto for more than one year qualifies gains for preferential federal rates (0%, 15%, or 20%) versus ordinary income rates (up to 37%). With no state income tax, Washington residents benefit fully from these lower federal rates.

 

Residency Changes

If you moved from a high-tax state like California to Washington, realize your crypto gains after establishing Washington residency. California will tax gains realized while you were a California resident. California aggressively audits departing residents—document your move thoroughly before executing major sales.

 

Token Compensation for Tech Workers

Washington's tech sector includes many companies that compensate employees with tokens or equity. Understanding the tax treatment is essential.

Vested Tokens

If tokens are fully vested when received, you owe federal ordinary income tax immediately on the fair market value.

 

Restricted Tokens

For tokens subject to vesting:

1. Default: Pay federal income tax as tokens vest, based on FMV at each vesting date

2. Section 83(b) Election: File within 30 days to pay tax immediately on grant-date value; subsequent appreciation taxed as capital gains

 

Services for Washington Crypto Investors

• Federal Tax Return Preparation: Complete Form 1040 with Form 8949 and Schedule D

• Transaction Reconciliation: Rev. Proc. 2024-28 compliant wallet-by-wallet tracking

• Form 1099-DA Matching: Reconciling exchange-reported data to prevent IRS notices

• Cost Basis Reconstruction: For early-acquired crypto or defunct exchange transactions

• Token Compensation Planning: Section 83(b) elections and vesting strategy

• Tax-Loss Harvesting: Strategic loss realization without wash sale restrictions

• Residency Change Planning: Guidance for clients relocating to Washington

• IRS Audit Defense: Representation before the IRS

• Estimated Tax Planning: Quarterly federal projections to avoid underpayment penalties

 

Areas We Serve in Washington

We serve Washington crypto investors statewide through our remote service model:

• Seattle Metro: Seattle, Bellevue, Redmond, Kirkland, Bothell

• South Sound: Tacoma, Olympia, Federal Way

• Eastern Washington: Spokane, Tri-Cities

• Other Areas: Vancouver, Bellingham, and communities throughout WA via secure portal and video consultation

 

Frequently Asked Questions

Does Washington's capital gains tax apply to crypto?

Currently, no. Washington's capital gains tax (7% on gains $262,000-$1M; 9.9% above $1M) specifically defines covered assets as stocks, bonds, and similar financial instruments. Cryptocurrency is not currently included. However, this could change through legislative action or regulatory interpretation, so we monitor developments closely.

 

I moved from California to Washington. When can I sell my crypto without California tax?

After you've properly established Washington residency. Gains realized while you were a California resident are taxable by California regardless of where you live when you file. California aggressively audits departing residents—make sure you've documented your move thoroughly before executing major sales.

 

I work for a tech company and received tokens. When do I owe tax?

If tokens are vested when received, you owe federal tax immediately on their fair market value as ordinary income. If subject to vesting, you owe tax as they vest—unless you file a Section 83(b) election within 30 days of grant to be taxed on the grant-date value instead. This is a federal tax obligation regardless of Washington's lack of state income tax.

 

I have transactions on defunct exchanges from 2015-2017. Can you help reconstruct my cost basis?

Yes. We use blockchain analysis, bank records, email confirmations, and other documentation to reconstruct cost basis for early-acquired crypto. This is increasingly important as Form 1099-DA data creates IRS matching—without documented basis, the IRS may assume zero basis and calculate tax on total proceeds.

 

What happens if Washington starts taxing crypto under the capital gains tax?

If cryptocurrency is included in Washington's capital gains tax, the unique state rules would apply: only long-term gains would be taxed, short-term losses couldn't offset long-term gains, and pre-2022 losses couldn't be used. This would create significant planning considerations different from federal treatment.

 

Get Expert Help with Federal Crypto Taxes

Washington's no-income-tax status is a significant advantage, but federal compliance still matters—especially with the 2025 regulatory changes. Let's discuss your situation and ensure you're properly compliant.

 

Schedule a Consultation

 

Phone: (862) 320-9554
Email: Greg@MonacoCPA.CPA

 

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