US Crypto Tax Guide
Anyone who trades cryptocurrency in the United States during the tax year 2021 will be required to file a tax return with the Internal Revenue Service. Taxpayers can file their returns between January 24 and April 18, with penalties imposed if they do so after the deadline. Cryptocurrencies, including non-fungible tokens (NFTs), are still considered “property” in the United States for tax purposes.
The IRS decided this in a 2014 notice. The vast majority of taxable actions involving digital assets will be subject to capital gains tax treatment, similar to how stocks are taxed. Cryptocurrencies earned from certain activities, on the other hand, are treated as income and thus subject to income tax.
Over the last year, the guidance on taxable events has become hazier due to new decentralized finance activities (Defi).
Do you have to Pay Taxes on Cryptocurrency
Cryptocurrency-related capital gains tax events include:
- I buy cryptocurrency with fiat currency (U.S. dollar, Japanese yen, etc.).
- I am sending cryptocurrency as a gift (for the tax year 2021, anything over $15,000).
- Buying goods and services with cryptocurrency, even small purchases such as coffee, is possible.
- Trading or exchanging one digital asset for another is digital asset swapping. This includes using cryptocurrencies to buy NFTs.
You only owe tax on any capital gains you make as a result of these events, not on the entire value of the assets you’ve sold. The difference between the asset’s purchase price and the price at which it was sold is used to calculate this.
The IRS hasn’t said whether minting tokens, such as wrapped tokens, publicly stamping NFTs, or minting interest-bearing assets, is a taxable event. It’s also unclear whether depositing or withdrawing liquidity from Defi liquidity pools with liquidity provider (LP) tokens are considered a crypto-crypto transaction. If you worked with any of these assets or processes in the previous tax year, you should seek professional advice.
The following are examples of income tax events:
- An airdrop is a method of receiving cryptocurrency.
- Any interest earnings from DeFi lending in crypto.
- Block rewards and transaction fees are two sources of cryptocurrency mining revenue.
- Liquidity pools and interest-bearing accounts generate cryptocurrency.
- Receiving cryptocurrency as payment for services rendered, such as bug bounties.
Surprisingly, the tax laws governing crypto earned through staking are still unknown. Many people report it as a source of income from mining. However, a lawsuit has been filed against the IRS, arguing that rewards should be taxed only when sold, not earned.
The plaintiffs argue that newly created property, such as furniture or other manufactured goods, is usually only taxable at the point of sale. This same principle, they believe, should be applied to newly minted tokens obtained through staking.
Trading losses can offset capital gains and deduct up to $3,000 from your regular income tax, depending on how long you’ve held the assets. Any additional losses can be carried over to the following year’s tax return. To qualify for a capital gains reduction, you must show a loss across all assets in a particular class.
Cryptocurrency Tax
The amount of cryptocurrency tax you owe in the United States is determined by the length of time you held the assets before selling them and your income tax bracket.
It is split into two sections:
Gains on Short-Term Investments
Profits from a cryptocurrency asset held for less than a year are taxed at the same rate as your income tax bracket. Any losses can be used to deduct up to $3,000 in income tax. Any additional losses can be carried over to the following year.
Tax Rates for Short-Term Capital Gains 2022
| Filing Status | 10% | 12% | 22% | 24% | 32% | 35% | 37% |
|---|---|---|---|---|---|---|---|
| Single | Up to $10,275 | $10,276 to $41,775 | $41,776 to $89,075 | $89,076 to $170,050 | $170,051 to $215,950 | $215,951 to $539,900 | Over $539,900 |
| Head of household | Up to $14,650 | $14,651 to $55,900 | $55,901 to $89,050 | $89,051 to $170,050 | $170,051 to $215,950 | $215,951 to $539,900 | Over $539,900 |
| Married filing jointly | Up to $20,550 | $20,551 to $83,550 | $83,551 to $178,150 | $178,151 to $340,100 | $340,101 to $431,900 | $431,901 to $647,850 | Over $647,850 |
| Married filing separately | Up to $10,275 | $10,276 to $41,775 | $41,776 to $89,075 | $89,076 to $170,050 | $170,051 to $215,950 | $215,951 to $323,925 | Over $323,925 |
Long-Term Capital Gains
The capital gains tax is much lower for crypto assets held for more than a year, depending on the individual or combined marital income; the capital gains tax is 0%, 15%, or 20%.
Tax Rates for Long-Term Capital Gains 2022
| Filing Status | 0% rate | 15% rate | 20% rate |
|---|---|---|---|
| Single | Up to $41,675 | $41,676 to to $459,750 | Over $459,750 |
| Head of household | Up to $55,800 | $55,801 to $488,500 | Over $488,500 |
| Married filing jointly | Up to $83,350 | $83,351 to $517,200 | Over $517,200 |
| Married filing separately | Up to $41,675 | $41,676 to $258,600 | Over $258,600 |
How to Prepare for Crypto Tax Season in the U. S.
Getting your crypto taxes ready and filed can be time-consuming, especially if you’ve never done it before. The first step in the filing process is to gather all of your crypto activity, which is both important and time-consuming.
For some, logging just one or two trades will suffice. It can be a monumental task for more experienced investors who have dabbled in NFTs, yield farming, airdrops, and other types of crypto trading. To avoid having to do everything at once, it’s usually a good idea to keep track of your trades as you go throughout the tax year.
After completing the first step, you’ll need to figure out whether you’ve made any capital gains or losses. Several platforms can handle this for you, some of which offer free trials and may have everything you need to finish this step.
After that, fill out Form 8949 and attach it to Form Schedule D. Crypto assets earned as income must be reported on Schedule 1 of Form 1040, and self-employed crypto earnings must be reported on Schedule C.
Finally, submit your forms before the deadline and pay any taxes you owe.
US Crypto Tax Guide 2022
Thank you very much for reading this article. If you need any information related to this article, you can tell us through the comment box. Do share this article with your friends or relatives. Thanks once again.
How to Prepare for Crypto Tax Season in the U. S.?
Getting your crypto taxes ready and filed can be time-consuming, especially if you’ve never done it before. The first step in the filing process is to gather all of your crypto activity, which is both important and time-consuming.
When Do U.S. have to Pay Tax on Cryptocurrency?
Cryptocurrency-related capital gains tax events include:
Buying cryptocurrency with fiat currency (U.S. dollar, Japanese yen, etc.).
I am sending cryptocurrency as a gift (for the tax year 2021, anything over $15,000).
Buying goods and services with cryptocurrency, even small purchases such as coffee, is possible.
Trading or exchanging one digital asset for another is digital asset swapping. This includes using cryptocurrencies to buy NFTs.
What is your Cryptocurrency tax in the U. S.?
The amount of cryptocurrency tax you owe in the United States is determined by the length of time you held the assets before selling them and your income tax bracket.
This is split into two sections-
Short-Term Capital Gains.
Long-Term Capital Gains.
