What’s The Tax Rate For Cryptocurrency – Our content is designed to educate over 300,000 crypto investors through our platform. Although our articles are for informational purposes only, they are written in accordance with the latest guidelines from the world’s tax agencies and reviewed by certified tax professionals before publication.
Want to know how much you have to pay in cryptocurrency taxes? Break down the money you owe the IRS under different circumstances
What’s The Tax Rate For Cryptocurrency
Depending on your specific circumstances, cryptocurrency can be taxed as long-term capital gains, short-term capital gains, or ordinary income.
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Ordinary income tax: If you earn cryptocurrency, whether through your work, mining, betting or airdrops, you recognize ordinary income in your income tax. It can vary from 10% to 37% depending on your income level
Meanwhile, cryptocurrency dispositions are subject to capital gains tax Examples of withdrawals are selling crypto, trading your crypto for other crypto, or making purchases with crypto.
Long-term capital gains tax: If you hold cryptocurrency for more than a year, your holdings will be subject to long-term capital gains tax. It varies from 0% to 20% depending on your income level
Make short-term capital gains: If you hold your cryptocurrency for less than a year, your withdrawals will be subject to short-term capital gains tax. For tax purposes, it is treated the same as ordinary income and can vary between 10% and 37% depending on your income level.
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The tax rate you pay on your cryptocurrency depends on several factors, including your income level and how long you’ve held your cryptocurrency.
If you release your cryptocurrency after holding it for more than 12 months, it will be taxed at long-term capital gains rates. Breakdown of tax rates by income level
If you hold cryptocurrency for less than 12 months or earn income from cryptocurrency, you will have to pay ordinary income tax. Breakdown of tax rates by income level
It’s important to remember that most taxpayers don’t pay a flat rate of tax on all their income. Instead, they pay progressively higher tax rates on different parts of their income.
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For example, a taxpayer earning $25,000 would not pay the 12% tax. Instead, they will pay 10% of the first $10,275 and 12% of the next $14,725.
Not sure if your crypto transactions should be counted as a capital gain or income tax event? Let’s review some common scenarios
Net investment income is the total amount you get from all your investments, including income from bonds, stocks, mutual funds and crypto. Your net investment income is calculated by adding capital gains, interest and dividends and any income from your cryptocurrency investments.
It is important to note that the vast majority of crypto investors do not have to pay NIIT The tax only applies if the lower threshold of net investment income is reached
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If you have $40,000 in income for the year and claim $16,000 in itemized deductions, your taxable income drops to $24,000. In some cases, the deduction can reduce your taxable income to the point where you may fall into a lower marginal tax bracket.
Remember that itemized deductions will only lower your tax bill if they add up to more than the standard deduction available.
The higher your taxable income, the more tax you’ll pay on capital gains. As a result, many investors choose to take profits when their income is low, such as when they’re between jobs or in full-time school.
Note that the tax rate on long-term capital gains is significantly lower than the tax rate on short-term capital gains. As a result, just holding your property for more than 12 months can significantly reduce your tax bill.
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Capital losses can offset up to $3,000 of capital gains and ordinary income Net losses over $3,000 can be carried forward to future years
In the United States, shares are subject to a wash sale rule that states investors cannot claim losses if they return their shares within 30 days. However, this rule does not currently apply to cryptocurrencies
If you’re looking for an easy way to file your cryptocurrency taxes, cryptocurrency tax software can help. You can connect your wallet and exchange and generate a full crypto tax report in minutes.
Yes, cryptocurrency is subject to capital gains and income tax Tax evasion can lead to fines of up to $250,000 and possible jail time.
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In the United States, cryptocurrency is considered a form of property Tax free when you earn or withdraw cryptocurrency
While there is no way to legally avoid capital gains tax on cryptocurrencies, you can reduce your tax bill with strategies such as tax loss harvesting.
How much you pay in cryptocurrency taxes depends on a number of factors, including your income level, how long you’ve held your cryptocurrency, and your total cryptocurrency gains/losses.
The easiest way to accurately report and pay taxes on crypto transactions between multiple exchanges and wallets is to use a crypto tax platform.
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All cryptocurrency dispositions are subject to capital gains tax, regardless of whether you reinvest your funds in cryptocurrency.
Miles Brooks holds a master’s degree in taxation, is a certified public accountant and a director of tax strategy.
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