Taxes on crypto trading are a reality with the IRS taxing cryptocurrencies as property, but your crypto tax rate will depend on many factors.
Today, we cover how crypto is taxed in the US, if trading one crypto for another is taxable, how to calculate crypto gains tax rates, and how CoinTracking can help you take care of crypto taxes.
In this article:
How is crypto taxed in the US?
The IRS taxes cryptocurrency as property, similar to stocks, leading to taxable events when you sell crypto or earn crypto income.
Let’s explore more about taxes on crypto trading.
Do you pay taxes on crypto trading?
Yes, if you trade cryptocurrencies like bitcoin (BTC) or ether (ETH) in the US, you’ll trigger a taxable event, subject to capital gains taxes.
In the US, trading crypto for FIAT (e.g., USD) or trading crypto for another cryptocurrency are both taxable events.
In both cases, you’ll need to determine your cost basis and date of purchase for your initial crypto acquisition, the sales proceeds, the date of the sale, and the profit/loss from the trade.
All of that information will be necessary to report your taxes on crypto trading.
Is trading one cryptocurrency for another a taxable event?
Yes, when you sell one cryptocurrency for another, that is considered a disposal, triggering a taxable event, subject to capital gains taxes.
Your crypto tax rate will depend on the holding period for the cryptocurrency you just sold and other factors relevant to your tax filing.
Taxes on cryptocurrency gains
Your taxes on cryptocurrency gains will depend on your holding period, resulting in a short-term capital gains tax rate or a long-term capital gains tax rate.
If you held your crypto for over 12 months before selling, you would be eligible for a long-term tax rate in the US, ranging from 0% to 20%, depending on personal factors.
If you held your crypto for 12 months or less before selling, you would be taxed at a short-term tax rate in the US, ranging from 10% to 37%.
How to avoid capital gains tax on cryptocurrency
You can reduce your capital gain taxes by offsetting them with crypto losses or by taking advantage of tax benefits for crypto investors like long-term holding.
Do you pay taxes on crypto if you don’t sell?
No, if you don’t sell your crypto, you do not need to report it or pay taxes on it.
But, if you only buy crypto and hold it, you won’t have to pay taxes.
How to report cryptocurrency on taxes
You need to report your cryptocurrency gains on your tax return alongside your crypto income.
For your crypto income, it will depend on the nature of the transaction. For example, crypto interest should be reported on Schedule B and miscellaneous crypto income on Schedule 1 of your income tax return.
Learn how to import crypto trades into CoinTracking with APIs
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:
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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.
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 35+ 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.