Paying taxes on cryptocurrency isn’t exactly the most exciting part of investing, and it’s often seen as overwhelming. Many taxpayers struggle with the process, especially since the IRS and SEC regularly update tax regulations.
This guide covers everything you need to know about cryptocurrency taxes, including how to file and report them correctly.
Tax Rates for Cryptocurrency
Understanding Crypto Taxation
The IRS determines how much tax you owe based on your income, filing status, and how long you’ve held your crypto assets.
If you’ve held your cryptocurrency for less than a year (under 365 days), you’ll fall under short-term capital gains tax. However, if you’ve held it for more than a year, it will be taxed as a long-term capital gain.
Below is a breakdown of the tax rates for both short-term and long-term capital gains.
| Tax Rate | Tax Filing Status | ||
|---|---|---|---|
| Single | Married Filing Jointly | Head of the House | |
| 10% | $0-$9,950 | $0-$19,900 | $0-$14,200 |
| 12% | $9,951-$40,525 | $19,901-$81,050 | $14,201-$54,200 |
| 22% | $40,526-$86,375 | $81,051-$172,750 | $54,201-$86,350 |
| 24% | $86,376-$164,925 | $172,751-$329,850 | $86,351-$164,900 |
| 32% | $164,926-$209,425 | $329,851-$418,850 | $164,901-$209,400 |
| 35% | $209,426-$523,600 | $418,851-$628,300 | $209,401-$523,600 |
| 37% | >$523,600 | >$628,300 | >$523,600 |
Short-Term Capital Gains Tax
As of 2021, short-term capital gains tax rates range between 10% and 37%, depending on your income bracket.
Long-Term Capital Gains Tax
2024, the long-term capital gains tax rate will vary between 0% and 20%. The tax rates for long-term capital gains are as follows:
| Tax Rate | Tax Filing Status | ||
|---|---|---|---|
| Single | Married Filing Jointly | Head of the House | |
| 0% | $0-$40,400 | $0-$80,800 | $0-$54,100 |
| 15% | $40,401-$445,850 | $80,801-$501,600 | $54,101-$473,750 |
| 20% | >$445,850 | >$501,600 | >$473,750 |
Taxable Events
Taxable events can be of two types:
- Capital gains tax
- Income tax
If you spend or use your cryptocurrency in any manner and its value has grown since you initially purchased it, you owe crypto taxes. The following are the many categories of taxable events associated with bitcoin transactions:
- Cash-out crypto for fiat currency
- Buying products or services with crypto
- Crypto trades
Only if the value of your cryptocurrency has increased is this considered a taxable event. The cost basis, or the amount you paid to obtain your crypto, is required to assess if you owe crypto taxes. Then, you compare it to the price you sold the crypto or the amount you received when you utilized it.
Assume that you bought some BTC for $10,000 some years back. The following are some instances of taxable events:
- You’d report $15,000 in profits if you sold the Bitcoin that you had for $25,000
- You’d report $5,000 in profits if you used your share of Bitcoin to buy goods worth $15,000
- You’d report $15,000 in profits if you trade your bitcoin for $30,000 in another cryptocurrency.
But what about income-taxable events?
Cryptocurrency income is taxed like regular income at its fair market value on the day it is acquired by the taxpayer. Here are some of the most popular examples of crypto income events:
- Receiving cryptocurrency as payment for a service
- Receiving interest payments when lending crypto
- Earning bonuses and rewards through mining cryptocurrency
- Earning benefits via staking cryptocurrency
Reporting Crypto Tax
Now, we are coming to one of the most important aspects of understanding tax on cryptocurrency—that is, reporting the taxes.
Form 8949 is used to declare cryptocurrency profits and losses, and some information is required to fill it out:
- Name of the crypto, such as Bitcoin, Ethereum, Ripple, etc.
- Date of acquiring and cost basis
- Selling, exchanging or disposing of date
- Gains or the selling price
- Profit or loss in total
The Bottom Line
The constant ups and downs of the cryptocurrency market, combined with tighter regulations from agencies like the IRS and SEC, have made managing cryptocurrency and handling crypto taxes increasingly complex.
Luckily, crypto tax software such as ZenLedger can simplify filing bitcoin taxes.
ZenLedger calculates your Bitcoin taxes quickly and identifies opportunities to help you save money and make smarter trading decisions. You can start for free today or explore our plans with tax professional support!
Disclaimer: This content is for informational purposes only and does not constitute tax, legal, or financial advice. Always consult your tax, legal, and accounting professionals before making financial decisions.
FAQs
How do I report Bitcoin on my taxes?
The way you report depends on the type of transaction. Whether it’s ordinary income or capital gains, you must list it under the correct section of the relevant tax form. To avoid manual errors, consider using tools like Coinbase or ZenLedger to automate the process.
Is there a way to avoid paying taxes on cryptocurrency?
Using a retirement account, such as an IRA, 401(k), or defined benefit plan, can help you defer or eliminate taxes on cryptocurrency assets. Another method is to gift or donate your crypto, which may allow you to avoid certain tax obligations.
Does Coinbase report to the IRS?
Yes, Coinbase issues two copies of Form 1099-MISC—one for users who earned over $600 from crypto rewards or staking and another sent directly to the IRS.
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