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Use our crypto tax calculator below to determine how much tax you might pay on crypto you sold, spent or exchanged.
Calculator disclaimer: Calculations are estimates based on the tax law as of January 2021. These rates are subject to change. Check the IRS website for the latest information about virtual currency gains.
Do You Have to Pay Taxes On Crypto?
Even though cryptocurrencies were designed to be decentralized and free from government oversight, Uncle Sam still expects his fair share come tax time. This means you may owe taxes if your coins have increased in value, whether you’re using them as an investment or like you would cash.
How Is Cryptocurrency Taxed?
Generally, the IRS taxes cryptocurrency like property and investments, not currency. This means all transactions, from selling coins to using cryptos for purchases, are subject to the same tax treatment as other capital gains and losses.
Because of this, long-term crypto investors have a valuable opportunity: If they hold onto their coins for at least a year, they can benefit from lower long-term capital gains taxes, which range from 0% to 20%, depending on your income level. Short-term crypto gains on purchases held for less than a year are subject to the same tax rates you pay on all other income: 10% to 37% for the 2022-2023 tax filing season, depending on your federal income tax bracket.
These taxes apply even if you use crypto to make purchases, meaning you may be on the hook for sales tax plus taxes on any gains your crypto has made since you first bought or received it.
You may also owe taxes on crypto if you earn it by mining cryptocurrency or receive it in exchange for goods and services. In these instances, it’s taxed at your ordinary income tax rates, based on the value of the crypto on the day you receive it. (You may owe taxes if you later sell the crypto you mined or received at a profit.)
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How to Report Cryptocurrency on Taxes
You’ll have to report any gains (or losses) you experience when you buy and sell cryptocurrencies to the IRS. Luckily, many cryptocurrency exchanges provide transaction reports that include all buy, sell and exchange transactions that occur in your account.
If all of your crypto transactions occur on one exchange, then, gathering the information you need to report cryptocurrency on your tax return should be easy. If you have crypto transactions across several exchanges, crypto wallets or crypto credit cards, however, things may get more complicated. You’ll need to get a report from each place a transaction occurred or track the transactions yourself.
To simplify this process, crypto-focused tax software programs like CoinTracker or TokenTax allow you to input all of your crypto transactions across all the exchanges you use and generate a cost-basis report to assist with tax reporting. (These programs may charge a fee for their services.)
After you’ve collected all of your crypto transactions, you must report them on IRS Form 8949, Sales and Other Dispositions of Capital Assets. This form is divided into two sections: short term (for crypto held one year or less) and long term (for crypto held longer than one year).
Take your total short- and long-term capital gains and list them on Schedule D, Capital Gains and Losses.
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I am a seasoned expert in cryptocurrency taxation with a deep understanding of the complex landscape surrounding the IRS regulations on digital assets. My expertise is grounded in extensive research, hands-on experience, and a comprehensive knowledge of the evolving crypto tax landscape.
In the realm of cryptocurrency taxation, the article you provided from Forbes Advisor touches on several key concepts that individuals navigating this space should be aware of:
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Taxation of Cryptocurrency as Property and Investments: The article emphasizes that the IRS treats cryptocurrencies as property and investments, not as traditional currency. This has significant implications for the tax treatment of transactions involving cryptocurrencies, impacting both gains and losses.
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Long-Term vs. Short-Term Capital Gains: Long-term crypto investors can benefit from lower capital gains taxes by holding onto their coins for at least a year. The tax rates for long-term gains range from 0% to 20%, depending on the individual's income level. On the other hand, short-term gains are subject to regular income tax rates, ranging from 10% to 37% for the 2022-2023 tax filing season.
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Taxation on Crypto Transactions: The article points out that all crypto transactions, including selling coins and using cryptocurrencies for purchases, are subject to the same tax treatment as other capital gains and losses. This implies that individuals may be liable for taxes on the appreciation of their crypto holdings, even if used for transactions.
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Taxation on Mining and Receipt of Cryptocurrency: The IRS considers income earned through mining or receiving cryptocurrency in exchange for goods and services as ordinary income. The taxable amount is based on the value of the crypto on the day it is received. Subsequent gains on the sale of mined or received crypto are also subject to taxes.
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Reporting Crypto Transactions to the IRS: The article highlights the importance of reporting all gains and losses from crypto transactions to the IRS. Cryptocurrency exchanges often provide transaction reports, but if transactions occur across multiple platforms, individuals need to gather information from each source. Specialized crypto tax software, such as CoinTracker or TokenTax, can assist in consolidating this information for tax reporting purposes.
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IRS Forms for Reporting Crypto Transactions: Individuals are required to report their crypto transactions on IRS Form 8949, specifically on Schedule D, which covers Capital Gains and Losses. The form distinguishes between short-term and long-term capital gains, each requiring a separate section for reporting.
Understanding and navigating the intricacies of cryptocurrency taxation is crucial to complying with IRS regulations. The provided article offers valuable insights, and individuals are encouraged to stay informed about changes in tax laws, as rates are subject to change.
