The IRS generally treats cryptocurrency gains the same way it treats any type of capital gain. How much is cryptocurrency taxed? Tax rates on cryptocurrency capital gains depend on your income level and how long you hold the cryptocurrency. TokenTax content follows strict guidelines for editorial accuracy and integrity. Gains on assets held for less than one year are considered short-term capital gains and are taxed at a person's income tax rate.
Gains on assets held for a year or more are considered long-term capital gains and receive lower rates. In the United States, profits from crypto trading, sales, and swaps are taxed as capital gains, and the exact rate depends on the length of time the asset was held and the owner's overall income. Income from mining, gambling, lending, or paying for goods or services is considered ordinary income and receives the tax rate that corresponds to an investor's gross income. Keep reading for our full breakdown of crypto tax rates for the U.S.
UU. The length of time a trader has held an asset determines whether their gains will be taxed as short-term capital gains or long-term capital gains. Encourages long-term trading by taxing long-term gains at lower rates. According to the IRS cryptocurrency tax FAQ, the withholding period starts the day after receiving an asset.
The cost base of the asset will be its purchase price, plus any applicable fees. Keep in mind that these rates are the same as your regular income tax. If you want to avoid higher taxes, you should prioritize long-term cryptocurrency trading whenever possible. This means that you can prioritize long-term trading whenever possible.
This can often result in lower crypto capital gains on tax returns, although sometimes a person's federal and state tax rates can cause short-term gains to be. To learn more about the basics of crypto taxation, visit our Crypto Tax Guide. See our plans and pricing to find out which solution best fits your needs. Do I have to pay taxes on cryptocurrencies?.
Yes, your bitcoins, ethereums and other cryptocurrencies are taxable. The IRS considers cryptocurrency holdings to be “property for tax purposes,” meaning that your virtual currency is taxed in the same way as any other asset you own, such as stocks or gold. If you have disposed of cryptocurrencies after less than 12 months of holding them OR have earned income from cryptocurrencies, you will have to pay ordinary income tax. Long-term capital gains tax rates have different rates than short-term capital gains, ranging from 0% to 20%, based on your total income.
If you get rid of your cryptocurrency after more than 12 months of holding, you will be taxed at the long-term capital gain rate. In other words, if you make a profit from the sale of a cryptocurrency or a non-fungible token (NFT), it triggers a taxable event in the eyes of the IRS. Dollars, exchanging one cryptocurrency for another by buying Ethereum with Bitcoin, for example, or paying for goods and services with cryptocurrencies. Because the IRS considers virtual currencies to be property, their taxable value is based on capital gains or losses, basically the value that your holdings gained or lost in a given period.
How long you hold your cryptocurrencies will affect the amount of capital gains you'll have to pay. Having looked at the two types of capital gains you may face and the importance of understanding the timing of the sale of cryptocurrencies, let's see what events can trigger a capital gains tax. If you're just getting into trading bitcoin or another cryptocurrency, and you only have a few transactions (with accurate cost base reporting), you may be able to easily report your cryptocurrency earnings using your typical tax software. Most art-based NFTs are classified as collectible for tax purposes, taxing them on capital gains like other common cryptocurrencies.
Even if you're not doing complex crypto activities and only have questions about your specific tax liability or if you're not sure you're reporting correctly, consider working with a tax professional who has experience interpreting tax codes related to virtual currencies. You can also owe taxes on cryptocurrencies if you earn them by mining cryptocurrencies or if you receive them in exchange for goods and services. Selling price — bid price (last bitcoin purchased) — bid price (first bitcoin purchased) %3D taxable profit. Even though cryptocurrencies were designed to be decentralized and free from government oversight, Uncle Sam still expects his fair share to come tax season.