Ah, Massachusetts! Home of clam chowder, the Red Sox, and the legendary Boston Tea Party – where colonists, in a defiant stand against taxes, dumped an entire shipment of tea into the Boston Harbor. These days, it's less about tea and more about bytes and bits.
In Massachusetts, cryptocurrency is viewed through the lens of “intangible personal property,” and its taxation reflects this classification.
Here's what you need to know…
In Massachusetts, all forms of income are subject to a flat 5% tax rate and that includes crypto. Activities like mining, staking, or accepting crypto for goods or services count as income.
Anyone with annual Massachusetts gross income over $8,000 must file a state tax return. The value of your crypto income at the time you receive it is the amount you report. And if your annual taxable income is greater than $1 million, you must pay an additional 4.00% income tax thanks to a new law that just passed.
Now some good news: you’re entitled to a personal exemption. The amount you can exempt depends on your filing status. The exemption amounts are:
- Single: $4,400
- Married filing separately: $4,400
- Head of household: $6,800
- Married filing jointly: $8,800
Here’s how the exemption works: say you’re a single individual with a taxable income of $100,000 in Massachusetts. You would subtract the personal exemption amount for a single filer ($4,400) from your taxable income. This means you would be taxed 5% on $95,600 ($100,000 - $4,400) rather than the full $100,000.
Capital Gains Tax
Any profit realized from the sale or exchange of crypto is subject to capital gains. Capital gains in Massachusetts, whether short-term or long-term, are taxed at the standard state income tax rate of 5%.
If you use crypto to acquire tangible goods or services, expect to pay 6.25% sales tax.
The tax amount is based on the crypto's fair market value in U.S. dollars at the exact moment of the transaction.
The estate tax, colloquially known as the "death tax," is a one-time levy on the total value of a deceased individual's estate.
The estate tax in Massachusetts underwent a significant change in 2023. Originally, the estate tax filing threshold was $1 million, with a graduated tax rate starting at 0.8% and capping out at 16%. However, a new law was ratified which doubled the Massachusetts estate tax exemption amount from $1 million to $2 million. Unlike the previous law, where the estate tax was imposed on the entire estate, the new law only taxes the amount exceeding $2 million.
The legal amendment stipulates that estates of descendants passing on or after January 1, 2023, would adhere to this new regulation, with the tax rate still ranging from 0.8% to 16%. For estates worth less than $1 million, no estate tax return needs to be filed nor any estate tax paid.
Crypto, classified as "intangible personal property," is included in the estate's total value.
Cryptocurrencies are intangible assets and aren't directly subject to property taxes in Massachusetts. However, if crypto is used to acquire tangible assets like real estate, standard property tax rules apply.
Corporate Tax on Crypto
Businesses in Massachusetts are subject to a corporate excise tax, which incorporates both an income-based tax and a capital-based tax. Income is taxed at 8%, and you’ll need to pay $2.60 per $1,000 of the greater of either taxable Massachusetts tangible personal property or taxable net worth. The minimum tax is $456.
There are no special business taxes regarding crypto, but there are separate taxing regimes for manufacturers, securities corporations, and financial institutions. There are also numerous tax credits that can affect your bottom line.
Your business is subject to these taxes when it owns or uses property in the state, has employees in the state, or is otherwise doing business in the state.
Additionally, you may have other business tax obligations, such as a
requirement to collect sales or use tax, meals tax, or withhold tax on wages paid. For all the nitty gritty, see https://www.mass.gov/business-taxes.
The Importance of Accurate Record-Keeping
As Massachusetts’ stance on crypto taxation evolves, it's imperative to maintain meticulous records, including transaction values, dates, and details of all parties involved.
Given the complexities associated with digital assets, utilizing specialized tools like Bitwave can offer a streamlined approach.
Bitwave's crypto tax software is designed to address these unique challenges and ensure that businesses in Massachusetts remain compliant with state regulations. The last thing you want is to land on Massachusetts’s public tax delinquents list. 😲
Disclaimer: The information provided in this blog post is for general informational purposes only and should not be construed as tax, accounting, or financial advice. The content is not intended to address the specific needs of any individual or organization, and readers are encouraged to consult with a qualified tax, accounting, or financial professional before making any decisions based on the information provided. The author and the publisher of this blog post disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use or application of any of the contents herein.