Crypto Tax Information
Crypto - Investments - Mining
Crypto Taxes | Tax Season Information
With the increasing popularity of cryptocurrencies such as Bitcoin, Ethereum, and Litecoin, it's important to understand the tax implications of owning, buying, selling, and trading these digital assets. The following are some key things you should know about crypto taxes:
- Cryptocurrency is treated as property for tax purposes: The IRS treats cryptocurrency as property rather than currency for tax purposes. This means that each time you sell, exchange, or use cryptocurrency, you may have a taxable event, just like when you sell a stock or a piece of real estate.
- Taxable events trigger capital gains or losses: When you have a taxable event, such as selling your cryptocurrency, you'll need to calculate your capital gains or losses. If you held the cryptocurrency for more than a year, you'll pay long-term capital gains tax rates, which are typically lower than short-term rates.
- Keep track of your transactions: It's important to keep detailed records of all your cryptocurrency transactions, including the date, type of transaction, amount of cryptocurrency, and the value in U.S. dollars at the time of the transaction. This information will be used to calculate your capital gains or losses.
- Crypto-to-crypto trades are taxable: Even if you're not converting cryptocurrency to U.S. dollars, trading one type of cryptocurrency for another can trigger a taxable event. This means that you'll need to calculate your capital gains or losses on these transactions as well.
- Mining cryptocurrency is also taxable: If you mine cryptocurrency, the fair market value of the cryptocurrency you receive as a result of mining is taxable income. You'll need to report this income on your tax return.
- Don't forget about foreign accounts: If you have cryptocurrency in a foreign account, you may be subject to additional reporting requirements, such as the Foreign Bank Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA).
- Seek professional help: The tax rules around cryptocurrency can be complex, so it's always a good idea to seek the advice of a tax professional who has experience with cryptocurrency.
In conclusion, owning and trading cryptocurrencies can be exciting and profitable, but it's important to understand the tax implications of these transactions. By keeping detailed records and seeking professional advice, you can stay compliant with the tax laws and avoid any surprises come tax time.
Types Of Crypto Taxation
Crypto is divided into two categories: Capital Gains and Income. Depending on the way crypto was acquired, it can be classified and taxed differently. This can be a bit tricky to understand as
there are so many different types of cryptocurrencies, tokens, and even other types of assets like NFT’s.
Basics Of Crypto
Let’s break down the two categories of crypto taxes and what is reportable and not reportable.
For Capital Gains,
Not Reportable:
- Buying Crypto
- Transferring Crypto To Yourself
- Donating crypto to a qualified tax-exempt charity or non-profit
- Receiving a gift
- Giving a gift
- Converting Crypto
- Selling Crypto
- Spending Crypto
For Income,
Reportable:
- Getting paid in crypto
- Getting crypto in exchange for goods or services
- Mining crypto
- Earning staking rewards
- Earning other income
- Inflationary Coins (ALGO)
- Interest Coins (USDC, DAI)
- Getting crypto from a hard fork
- Getting an airdrop
- Receiving other incentives or rewards (Ex. Getting free money from Coinbase Earn)
During this tax season, it's important for crypto investors to be aware of the differences between short-term and long-term capital gains when it comes to capital gains taxes, which are imposed at both federal and state levels. Holding onto your crypto for longer than a year before selling can result in a lower tax rate than selling immediately.
Long-term gains are subject to a reduced capital gains rate, with rates varying depending on income and potentially being subject to the 3.8% Net Investment Income Tax for higher income taxpayers. Short-term gains, on the other hand, are taxed at your ordinary income rate, which is generally higher.
It's important to remember that taxable events occur when you realize losses or gains, meaning you've sold your crypto for cash, converted it to another crypto, or spent it on goods or services. If you sell an asset for less than what you paid for it, it results in a capital loss. However, you can use these losses to offset other capital gains you may have had, potentially reducing your overall tax bill on a dollar-for-dollar basis.
If you have more losses than gains or no gains at all, you can declare up to $3,000 of losses each year to offset other income. Any excess losses can carry over to subsequent years until the full amount of the loss is applied.
To make tax reporting easier, it's recommended to use a service like Ledgible, which allows users to connect their exchanges, wallets, and manual entries to calculate and track all their crypto transactions. If additional help is needed, users can also add a crypto specialist for personalized assistance. The Ledgible support team is also available to quickly address any issues that may arise.
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