Are Cryptocurrencies Subject to Tax? Here’s What You Need To Know

Last Updated on June 17, 2022

If you are buying and selling crypto regularly and have significant gains, it’s essential to be aware of the tax implications. You may be due a tax bill at the end of the year and should be accounting for any gains accordingly. If you’re unsure how to calculate your crypto tax, you can consult with a professional or use one of the many A.I. online tools available. This will help take the guesswork out of how much you owe and will help ensure that you get every deduction you’re entitled to. 

In the U.S., cryptocurrencies are subject to taxes as other property and investment income. This means that any capital gains or losses are taxable and that cryptocurrencies are subject to capital gains tax the same way as other forms of property. Additionally, cryptocurrencies are subject to income tax if used as a medium of exchange in a transaction. 

How does cryptocurrency taxes work in the U.S. as framed by IRS? 

The Internal Revenue Service has a negative view of cryptocurrencies. IRS has declared that they are property, not currency. This means that every transaction involving them is taxable and will be treated as if you sold the property for cash. The rate at which you bought it is the cost basis. When you sell it, it is a taxable income amount. The taxable events in between are also something the IRS wants you to keep track of. 

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When can you report your crypto taxes? 

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  1. You have to report your earnings in U.S. dollars even if you received cryptocurrency as payment. If you purchased cryptocurrency and did not immediately sell it, you have to estimate its value in U.S. dollars on the date of purchase and report that amount on your tax return. If you sell cryptocurrency and have proceeds in U.S. dollars, you have to report those on your tax return. You have to report your earnings from cryptocurrency on Form 1040 Schedule D. 
  2. If you’re trading cryptocurrency in the U.S., you have to report any profits or losses on your taxes. This will allow you to determine your profit or loss on every transaction. You can use an app or software for this crypto tax reporting. And you must fill out Form 8949 to report your profits and losses from trading cryptocurrencies. 
  3. If you use a fiat currency to make the purchase, it’s not a taxable event. However, if you exchange one cryptocurrency for another and then use that one to make the purchase, that’s considered a taxable event. Similarly, receiving NFTs as compensation for your work and then exchanging them for another cryptocurrency is also considered a taxable event. 

 What are the crypto tax rates for 2022 

Long term tax rates for single holders 

  1. 0 % tax rate in the tax bracket of $0-$41,675 
  2. 15 % tax rate in the tax bracket of $40,676-$459,750 
  3. 20 % tax rate in the tax bracket >$459,750    
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Short-Term Crypto Gains tax rates for single holder 

  1. 10 % tax rate in the tax bracket of $0-$10,275 
  2. 12 % tax rate in the tax bracket of $10,276-$41,775 
  3. 22 % tax rate in the tax bracket of $41,776-$89,075 
  4. 24 % tax rate in the tax bracket of $89,076-$170,050 
  5. 32 % tax rate in the tax bracket of $170,051-$215,950 
  6. 35 % tax rate in the tax bracket of $215,951-$539,900 
  7. 37 % tax rate in the tax bracket of >$539,900 

Long term tax rates for married couples who are jointly filing

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  1. 0 % tax rate in the tax bracket of $0-$83,350 
  2. 15 % tax rate in the tax bracket of $83,351-$517,200 
  3. 20 % tax rate in the tax bracket >$517,200

Short-Term Crypto Gains tax rates for married couples who are jointly filing 

  1. 10 % tax rate in the tax bracket of $0-$20,550 
  2. 12 % tax rate in the tax bracket of $20,551-$83,550 
  3. 22 % tax rate in the tax bracket of $83,551-$178,150 
  4. 24 % tax rate in the tax bracket of $178,151-$340,100 
  5. 32 % tax rate in the tax bracket of $340,101-$431,900 
  6. 35 % tax rate in the tax bracket of $431,901-$647,850 
  7. 37 % tax rate in the tax bracket of >$647,850 

Long term tax rates for household heads   

  1. 0 % tax rate in the tax bracket of $0-$55,800 
  2. 15 % tax rate in the tax bracket of $55,801-$488,500 
  3. 20 % tax rate in the tax bracket >$488,500

Short-Term Crypto Gains tax rates for household head 

  1. 10 % tax rate in the tax bracket of $0-$14,650 
  2. 12 % tax rate in the tax bracket of $14,651-$55,900 
  3. 22 % tax rate in the tax bracket of $55,901-$89,050 
  4. 24 % tax rate in the tax bracket of $89,051-$170,050 
  5. 32 % tax rate in the tax bracket of $170,051-$215,950 
  6. 35 % tax rate in the tax bracket of $215,951-$539,900 
  7. 37 % tax rate in the tax bracket of >$539,900 
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With the help of A.I.-powered tools, how can you calculate your cryptocurrency taxes? 

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  1.  You can calculate your crypto tax using A.I.-powered software by having your transactions listed.  
  2. Then, you have to determine if your assets are increasing and decreasing in value. If they increase, you have a taxable gain, and if they decrease, you have a taxable loss.  
  3. Next, you will have to decide if you want to defer or non-defer the schedule, depending on your situation.  
  4. Now, you have to fill out Form 8949 and then start filling out your 1040 or 1040E with the help of the software you are using. 

Summary – 

It can be challenging to manage your cryptocurrency taxes in the United States, especially if you have a cryptocurrency and fiat currencies portfolio. Cryptocurrency is not recognized as legal tender, so every transaction using it is taxable. The IRS has stated that cryptocurrencies, including Bitcoin, will be treated as assets and not currency.

This means that you’ll have to decide which type of income you earned and report it accordingly and which assets you own and use. Additionally, you’ll have to calculate your adjusted cost basis for every cryptocurrency you own. If you’re interested in cryptocurrency but aren’t sure how to calculate your crypto tax, you can use an A.I.-powered tool from Flyfin. These tools can help you track your transactions and figure out how much tax you owe.