The rate cryptocurrency is taxed at depends on how long you held the asset for and your annual income. Under U.S. Tax law, bitcoin and other cryptocurrencies are classified as property and subject to capital gains taxes. But you only owe taxes when those gains are realized. The federal tax rate on cryptocurrency capital gains ranges from 0% to 37%. Your specific tax rate primarily depends on three factors: 1 / The accounting method used for calculating gains.
The Internal Revenue Service (IRS) treats all cryptocurrency as capital assets and taxes them when they're sold at a profit. Inherited cryptocurrency has the cost basis of the decedent Cryptocurrency paid as wages is subject to Federal tax withholding Cryptocurrency payments are subject to information reporting (e.g. Forms W-2, 1099, 1042 -Misc., etc.)
Cryptocurrency is considered "property" for federal income tax purposes, meaning the IRS treats it as a capital asset. To lower your tax burden, make sure the cryptocurrency you sell has been held for more than a year. If it has, your cryptocurrency sale may qualify for the lower long-term capital gains tax rates. This could save you a significant amount of money on your tax bill. 5. Offset crypto gains with losses.
If you hold crypto for a year or less before selling it, your cryptocurrency tax rate is that of short-term gains, which is taxed at your income tax rate. If you hold the crypto for more than a year, then your cryptocurrency tax rate is the lower capital gains rate, which changes depending on your federal income tax bracket. In the U.S., cryptocurrencies like bitcoin are treated as property for tax purposes. Just like other forms of property like stocks, bonds, and real-estate, you incur capital gains and capital losses on your cryptocurrency investments when you sell, trade, or otherwise dispose of your crypto. Alas, death and taxes are also certainties in the world of cryptocurrency. Hopefully your crypto portfolio doesn't contain any coins that died, but in certain situations, you will still have to pay taxes on digital currencies like Bitcoin, Ethereum, and Dogecoin.
The following are a few types of cryptocurrency transactions that are deemed taxable according to the IRS. Firstly, exchanging any cryptocurrency for fiat (also known as "cashing out"), is an obvious taxable event. Similarly, a second taxable example is the exchange of one type of cryptocurrency for another.
Taxes on cryptocurrency transactions while under 18. I'm based in California. I've made quite a few crypto transactions including buying/selling crypto, exchanging betweens cryptos, and receiving staking rewards in crypto. I understand that these would usually be taxable events, but I made these transactions while under 18 and didn't report them. The total ordinary income from staking between May and August is $557.06 and should be reported as taxable income. If you are staking cryptocurrency and the activity is classified as just a hobby, you should include the taxable income amount as Other income on line 21 of Form 1040 Schedule 1.