According to the Internal Revenue Service (IRS), most cryptocurrencies are convertible virtual currencies. So, is transferring crypto a taxable event? Apparently, no, according to the IRS. In 2022, the IRS changed the tax brackets to reflect inflation. The IRS taxes short-term crypto profits as regular income.
If your selling price exceeds your cost basis, these transactions may result in capital gains taxes. The cost basis is the amount you forked over to buy crypto. The IRS will tax your profits depending on your income level and the length of time you held the post. Some investors sell cryptocurrency at a loss in order to pay less in taxes.
The IRS generally treats gains on cryptocurrency the same way it treats any kind of capital gain. That is, you’ll pay ordinary tax rates on short-term capital gains (up to 37% in 2022, depending on your income) for assets held less than a year. You must file a tax return if you receive $500 in cryptocurrency in exchange for services. No matter how much the crypto’s value rises or falls over time, you will still have to pay income taxes on that $500.
1. Cashing Out Crypto for Fiat 2. Converting a Cryptocurrency 3. Purchasing Goods and Services with Crypto
1. Receiving Crypto as Payment 2. Mining or Staking Crypto 3. Receiving Crypto in Play-to-earn Game 4. Earning other income 5. Receiving an Airdrop 6. Participating in a Hard Fork
A hard fork is a significant modification to the protocol of a blockchain network that renders invalid previously validated transaction history blocks or the opposite. A crypto will frequently engage in a hard fork because it wants to establish a new regulation for the blockchain. A hard fork does not always result in the taxpayer receiving new bitcoin, and as a result, it does not always cause a taxable event.
1. Purchasing Crypto With USD/Fiat 2. Buying Crypto in an IRA 3. Holding Crypto 4. Transfers Between Your Own Wallets and Exchange 5. Giving or Receiving Crypto as Gift 6. Donating Crypto to a Qualified Nonprofit
If you pay taxes in the United States, you’re undoubtedly accustomed to seeing deductions for federal and state income taxes on your pay stubs. The income taxes that apply to other forms of income, such as mining, staking, and rewards, also apply to crypto earnings, albeit they are frequently not withheld or deducted. You’ll typically owe what your tax bracket-appropriate income tax rate is when you submit your earnings.
You must first know how much crypto you had before you started in order to determine how much you made or lost. The term “cost basis” refers to this. Your cost basis for purchasing crypto is often established by the price you pay. The fair market value at the time you obtained the cryptocurrency, however, governs your cost basis whether you acquired it through mining or staking.