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Cryptocurrency Tax Rates in the United States

Cryptocurrency tax rates in the United States can be confusing and overwhelming for those who are new to the world of digital assets. In this blog, we’ll break down the different tax rates that may apply to your cryptocurrency transactions and provide some tips on how to stay compliant with the Internal Revenue Service (IRS).

IRS acknowledges Crypto as Property

First, it’s important to understand that the IRS views cryptocurrency as property, not currency. This means that your cryptocurrency transactions are subject to capital gains tax, similar to how you would pay taxes on the sale of stocks or real estate. The tax rate that you’ll pay on your cryptocurrency capital gains depends on your tax bracket and how long you held the asset before selling it.

If you held the cryptocurrency for less than a year before selling it, you’ll pay short-term capital gains tax at your ordinary income tax rate. For example, if you’re in the 22% tax bracket, you’ll pay 22% in tax on your cryptocurrency capital gains calculated using the best crypto tax softwares.

If you held the cryptocurrency for more than a year before selling it, you’ll pay long-term capital gains tax at a lower rate. The long-term capital gains tax rate is based on your tax bracket, and ranges from 0% to 20%. For example, if you’re in the 12% tax bracket, you’ll pay 12% in tax on your cryptocurrency capital gains.

You’ll owe taxes only when you earn a Profit from it

It’s important to note that you’ll only owe taxes on your cryptocurrency capital gains if you sell your cryptocurrency for a profit. If you sell your cryptocurrency for a loss, you may be able to claim a capital loss on your tax return, which can offset any capital gains you have.

In addition to capital gains tax, you may also owe taxes on cryptocurrency income that you receive as payment for goods or services. For example, if you’re a freelancer and you receive payment in cryptocurrency for your services, you’ll owe taxes on that income at your ordinary income tax rate.

If you’re mining cryptocurrency, you’ll also owe taxes on the income you earn from mining. The crypto capital gains tax that you’ll pay on your mining income depends on whether you’re classified as a hobbyist or a business. If you’re a hobbyist, you’ll pay taxes on your mining income at your ordinary income tax rate. If you’re a business, you’ll pay self-employment tax in addition to income tax.

How can you stay compliant with the IRS when it comes to cryptocurrency taxes? 

Here are a few tips:

  • Keep track of your cryptocurrency transactions: 

It’s important to keep detailed records of all of your cryptocurrency transactions, including the date, the amount, and the value in USD at the time of the transaction. This will make it easier to calculate your capital gains and losses when it comes time to file your taxes.

  • Report your cryptocurrency transactions on your tax return: 

Be sure to report your cryptocurrency transactions on your tax return, even if you don’t owe any taxes. You’ll need to file Form 8949, Sales and Other Dispositions of Capital Assets, to report your capital gains and losses. 

  • Consider using tax software: 

Tax software can make it easier to track your cryptocurrency transactions and calculate your capital gains and losses. Some tax software even has features specifically designed for cryptocurrency taxes.

  • Consult with a tax professional: 

If you’re unsure how to handle your cryptocurrency taxes, it may be a good idea to consult with a tax professional who has experience with digital assets. They can help you understand your tax obligations and ensure that you’re complying with the IRS.

Cryptocurrency tax rates in the United States depend on a variety of factors, including your tax bracket, how long you held the asset before selling it, and whether you received the cryptocurrency as a gift.

Binocs is an excellent platform for managing cryptocurrency taxes and coin tracking. It manages daily market value fluctuations and ensures the condition of our coins and tokens.

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