You’ve traded crypto, but how much taxes do you need to pay? Depending on the nature of your crypto trades and your overall tax situation, you’ll be subject to different tax rates. It is important to understand your crypto tax reporting requirements and make sure that you are compliant.
Today, we cover how much taxes you need to pay on crypto with regard to different taxable events in the US.
In this article:
Do you pay taxes on crypto?
Yes. When you trade crypto, you’ll have a taxable event, subject to capital gains taxes in the US.
Trading any cryptocurrency for FIAT or another crypto falls in the same tax scenario. Trading anything from NFTs, Metaverse land, DeFi tokens, or personal/fan tokens are also taxable events in the US, subject to capital gains taxes.
How much taxes do I have to pay on cryptocurrency?
The taxes you’ll pay depends on your holding period, total taxable income for the tax year, filing status, and other factors.
If you’re taxed at a short-term capital gains level, the tax rate ranges from 10% to 37%, while the long-term capital gains tax rate ranges from 0% to 20%. At the ordinary income level, the tax rate ranges from 10% to 37%.
How much taxes do you pay for short-term capital gains?
If you trade crypto and hold it for no more than 12 months before selling it, you’ll be subject to short-term capital gains tax rate for that particular trade, ranging from 10% to 37%.
The U.S. federal income tax brackets for 2022 are available here. Let’s look at an example. Imagine that you have a $100,000 salary, a crypto trade netted you a $5,000 gain (the only trade you did), and you’re filing as a single person. This will get you in the $86,376 to $164,925 tax bracket range.
How much taxes do you pay for long-term capital gains?
If you held your crypto for more than 12 months before selling it, you would be subject to long-term capital gains tax rate, ranging from 0% to 20%.
Let’s look at the same example as above. But, this time, you held that crypto for over 12 months, so your $5,000 gain will be taxed at a long-term capital gains tax rate.
In this case, you’ll fall under the income level that ranges from $40,401 to $445,850, thus subjecting you to a 15% long-term capital gain tax rate.
Do I have to pay taxes every time I sell cryptocurrency?
Yes, you’ll be taxed on every crypto trade you make during the tax year if you have a gain. You don’t pay taxes when you conduct the trade itself, but you have to determine the gain or loss on each trade, and any net gain will be subject to a short-term or long-term tax rate. You will need to make a tax payment when you file your tax return next year.
Do you have to pay taxes on crypto if you reinvest your profit?
Yes. If you sell your crypto for a gain, and reinvest the total amount or just your gain, you’ll have another taxable event when you sell your reinvestment.
Imagine that you bought bitcoin and sold it for Ethereum. That’s your first taxable event, subject to capital gains taxes. Let’s say you gained $500 in that trade. If you sell your Ethereum (any amount) for another cryptocurrency or FIAT, you’ll have another taxable event, subject to capital gains taxes.
Do you pay taxes on crypto losses?
No. If you have realized losses from your crypto trades, you don’t need to pay taxes on them. Instead, you can use the loss to offset some of your capital gains.
Traders do this with the goal of lowering their total tax bill. When they have a trade they believe won’t recover, and they have a lot of gains from other trades, they sell the losing position and use that loss to offset their gains. This strategy is called crypto tax-loss harvesting.
How can I avoid getting taxed on crypto?
You can effectively reduce your crypto capital gains in several ways, thus reducing your taxes from crypto.
For example, you can donate crypto with a substantial unrealized gain that you have held for more than 12 months to a charitable organization. In such a case, you don’t need to recognize any gain, and you can claim a charitable tax deduction for the amount of FMV of the crypto you donated.
Also, you can use crypto tax-loss harvesting or take advantage of the wash sale rule until 2023. For more ways to reduce your crypto taxes, check this guide.
Discover which of your crypto can get you a long-term capital gains tax rate:
The best crypto tax software: CoinTracking
The best crypto tax software in the market is CoinTracking.
You can import your trades using CSV or API, track your gains/losses, and generate tax reports according to your preferred accounting method.
CoinTracking is your full crypto tax solution for:
DeFi and NFT support with our ETH+DEX importer.
25+ advanced reports, including which coins offer you a tax-free rate.
Automatic capital Gains, according to 12 accounting methods (e.g., FIFO, LIFO, HMRC, ACB), accepted worldwide.
Generating complete Tax Reports in your country.
Crypto taxes with no errors: CoinTracking Full Service in the US.
CoinTracking also offers a Full Service for US traders. A crypto reconciliation tax expert from Polygon Advisory Group, a leading US crypto tax firm, will review your CoinTracking account, help fix any errors, and ensure you submit your crypto tax reports error-free.
Do you have any crypto tax questions? Check the best guides:
Do you pay taxes on crypto margin trading?
How are rebase token protocols taxed?
Do you pay taxes on fan tokens?
What happens if you don't file your crypto taxes?
Do you pay taxes when trading stablecoins?
How is Yield Farming Taxed?
DeFi Taxes: The Complete Guide.
How to save taxes with a Bitcoin IRA.
Do you pay taxes for receiving Bitcoin tips?
Uniswap Taxes Guide
How to calculate taxes with Bitcoin dollar-cost averaging?
FIFO for crypto taxes? Implications of accounting methods.
NFT Taxes: The Complete Guide.
Is Bitcoin taxable? The ultimate guide for 2021 taxes.
How to reduce your crypto taxes?
Crypto tax loss harvesting: Here’s what you need to know
This post is part of the Crypto Taxes AMA series. Follow our weekly AMAs on Twitter where our expert CPA, Sharon Yip answers your crypto tax questions. You can download 30+ AMA crypto tax reports for free.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.