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Your Crypto Tax Answers

Learn about crypto taxes in the US, Australia, and Germany with insights from professional crypto tax accountants while discovering the best crypto tools in the market.

Taxes on Crypto Trading

Updated: Sep 3, 2022

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.

You’ll need to determine your crypto capital gains and income during the tax year and appropriately report them on the correct tax forms.

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.

The best way to avoid capital gains tax is to use crypto tax loss harvesting or apply the wash sale rule for crypto, reducing your gains by realizing losses at the end of the tax year.

Alternatively, you can donate crypto to charities, take crypto loans and deduct interest, or hold crypto for over 12 months before selling to be eligible for a long-term crypto capital gains tax.

The last option would be to move to a crypto-tax-friendly state in the US or a crypto-tax-free country.

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.

However, if you receive crypto income from transactions like airdrops, hard forks, staking rewards, or interest, you’ll need to report that income and pay income taxes.

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 capital gains, you'll need to fill out Form 8949 and Schedule D of your Form 1040.

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 more about crypto tax reporting and what tax forms you need.

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:

Moreover, CoinTracking can easily classify all your earnings from yield farming, liquidity pools, crypto staking, and much more.

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:

  1. How are rebase token protocols taxed?

  2. Do you pay taxes on fan tokens?

  3. Do you pay taxes when trading stablecoins?

  4. How is Yield Farming Taxed?

  5. DeFi Taxes: The Complete Guide.

  6. How to save taxes with a Bitcoin IRA.

  7. Do you pay taxes for receiving Bitcoin tips?

  8. Uniswap Taxes Guide

  9. Is wrapping crypto taxable?

  10. How to calculate taxes with Bitcoin dollar-cost averaging?

  11. Do you pay tax on stolen, hacked, or lost crypto?

  12. FIFO for crypto taxes? Implications of accounting methods.

  13. NFT Taxes: The Complete Guide.

  14. 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.

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