How Illinois Taxes Cryptocurrency

Illinois has always been an innovator when it comes to taxation.

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In the 19th century, it was railroads. Illinois was among the first states to develop a systematic approach to taxing them based on metrics like track mileage and the value of the rolling stock.

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In the 20th century, they were one of the first states to adopt a sales tax.

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Today, the state is grappling with the very 21st-century problem of how to tax your digital wallet.

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Illinois treats crypto as “intangible personal property” and taxes it accordingly. This means any gains from the sale or transfer of crypto might be subject to capital gains tax, crypto earned as income is subject to income tax, and in the event of your death, your crypto would be considered part of your estate as an intangible asset and subject to estate tax.

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Whether you’re already a resident of the land of Lincoln or planning to relocate here, we'll break down what every individual and business needs to know about navigating Illinois’ crypto tax terrain. Stay tuned; the answers might surprise you!

Income tax

In Illinois, everyone pays the same flat tax rate of 4.95% regardless of their income level. This system differs from many other states, which have a progressive tax system where the tax rate increases as the taxable amount increases.

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Additionally, Illinois offers a personal exemption allowance, which for the year 2023 is set at $2,425. This helps to reduce your overall taxable income, which in turn reduces the amount of tax owed. However, if you have an adjusted gross income of more than $250,000 for single filers or $500,000 for joint filers, then you cannot claim this exemption.

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Anyone who is a resident of Illinois or has earned income from a source in Illinois - including income derived from crypto, such as from mining, staking, or as payment for goods or services - is required to file a state tax return.

Capital gains tax

Capital gains are taxed as regular income, which means they are subjected to the flat state income tax rate of 4.95%, regardless of the duration your crypto was held before being sold​​​. This applies to both long-term and short-term capital gains.

Sales tax

The state sales tax rate for 2023 is set at 6.25%. However, local municipalities such as counties and cities have the option to levy additional sales taxes. In Chicago, for example, the sales tax rate is 10.25%, which includes:

• Illinois state sales tax: 6.25%
• Cook County sales tax: 1.75%
• Chicago city tax: 1.25%
• Special district tax: 1%

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When crypto is used to purchase tangible goods and services, sales tax applies. If you’re solely buying and selling crypto instead of using it as a medium of exchange, trading crypto would be exempt from sales tax.

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The sales tax rate is calculated based on the fair market value of the crypto in dollars at the time of the sale when used to purchase goods or services.

Estate tax

Often referred to as the "death tax," the estate tax is levied on the total value of a deceased person's estate before the distribution to heirs. This includes all assets, including crypto.

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The estate tax is graduated, meaning it increases with the value of the estate, and the top tax rate is 16%. However, if the estate's total value is less than $4 million, no estate tax is owed. If the estate’s value is over $4 million, the tax is owed on the entire value of the estate, not just the amount over $4 million. The Illinois Attorney General has an estate tax calculator you can use.

Property tax

Unlike tangible assets, crypto is not subject to property taxes in Illinois due to its intangible nature.

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If you decide to purchase tangible property, though, like real estate, Illinois has one of the highest property tax rates in the country. The average property tax rate for the state is 2.07%, while Cook County, where Chicago is located, has an average rate of 2.19%.

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Various exemptions and abatements are available to different groups, including seniors, persons with disabilities, veterans, and long-term residents, among others.

Corporate tax

Like the individual income tax, Illinois also has a flat income tax rate for companies. Expect to pay 7% of net income.

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Additionally, there’s a Personal Property Replacement tax of 2.5% of net income. Estimated payments are made quarterly.

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Companies also have to withhold 4.95% of employee compensation based on the number of allowances claimed by the employee. If an employee is paid in crypto, the fair market value of the crypto is subject to withholding.

Good record-keeping is crucial

The intricacies of each tax type can be overwhelming, and good record-keeping can mean the difference between having a clear financial picture and being in the dark about your tax obligations.

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One tool that can significantly simplify this process is Bitwave, a crypto tax platform designed for businesses to streamline back-office operations, increase productivity, and reduce complexity.

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It helps track every crypto transaction and taxable event, simplifying quarter-end procedures. It even offers a solution for enterprises to pay bills, invoice, or run payroll in crypto. With advanced APIs, custom reporting, and out-of-the-box Gain-Loss Reports, Bitwave is a comprehensive solution for managing your crypto taxes.

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