Mar 17, 2023

Read 4 min.

How much does crypto get taxed

In 2023, many countries around the world have made significant strides in crypto regulation and have changed crypto taxes. But what’s the reason? Today, not only crypto investors, but other people are increasingly interested in digital assets, making the need for legal certainty for crypto in some countries urgent. In addition, the number of crypto transactions is on the rise day by day.

Right now, we’re going to summarize all the information about crypto taxes so you can get up to speed on this topic. This is very important because many people want to make money buying/selling digital assets, and crypto transactions can be made for large amounts.

How is crypto taxed?

Now crypto taxes are levied on various operations conducted by businesses and individuals using digital assets. This leads to extensive discussions on more specific issues such as the need for licensing of crypto exchanges, crypto taxes, and other important topics. The situation is constantly evolving. Here are some general guidelines on how crypto is taxed:

  • Capital gains taxes. When you sell/exchange coins for fiat currency (e.g. USD, EUR), you may be subject to capital gains taxes. The gain/loss is calculated by subtracting the cost basis (the original purchase cost) from the sale cost. The crypto tax rate depends on how long you held the asset before selling it (short-term or long-term capital gains).
  • Mining. If you receive digital currency through mining, the value of your crypto at the time of receipt is considered income for crypto tax purposes. You may also be able to deduct expenses related to mining, such as electricity and hardware costs.
  • Crypto trade. When you trade one coin for another, it is generally considered a taxable event. The gain or loss from crypto trade operations is calculated based on the fair market value of the coins at the time of the exchange.
  • Spending coins. This means that you may be required to report the crypto transactions on your tax return and pay any applicable crypto taxes based on the fair market value of the assets at the time of the deal.
  • Airdrops. Receiving an airdrop from a project as part of a marketing campaign or promotional giveaway is considered taxable income. For crypto investors, it is important to report the amount received on a tax return.

So, It’s important to note that the crypto tax treatment may vary by jurisdiction. Therefore, it’s important to consult with a professional in this field or a financial advisor to understand the implications of crypto transactions in your country.

Do you have to pay crypto taxes?

So, coins/tokens are considered digital assets in the United States, and the IRS generally treats them similarly to stocks or bonds. Any gains from crypto transactions are subject to taxation, either as income or capital gains tax. Also, crypto taxes depend on factors such as how the cryptocurrency was acquired and how long it was held.

To determine if you have a crypto tax liability related to your digital asset, it’s important to analyze how you used it. Taxable events refer to transactions that are subject to taxation, while non-taxable ones have no crypto tax implications. Let’s look at cases where crypto investors have no obligations to the IRS:

  • Receiving coins as a gift is usually considered a non-taxable event, and you don’t have to pay crypto tax on the gift until you sell it.
  • If you donate digital currency directly to a qualified tax-exempt charity or nonprofit organization, you may be able to claim a charitable deduction on your tax return.
  • Transferring cryptocurrency between wallets or accounts that you own is not taxable. You can retain your original cost basis and purchase date to monitor potential crypto tax consequences if you decide to sell assets in the future.
  • When you stake ETH and possess ETH2 that generates staking rewards, those earnings are usually not taxable since they have not been released by the protocol.

Simply buying tokens on a crypto exchange and holding them is not a taxable event. In other words, crypto tax is usually triggered later when you sell it and realize the gain or loss.

How much crypto tax do I pay?

For example, in the United States, crypto is treated as property, which means that any gains or losses from crypto trade are subject to capital gains tax. It should also be clarified that the capital gains tax rate depends on the taxpayer’s income level and the holding period of the currency.

If the coins are held for less than one year, it is considered a short-term capital gain and the crypto tax is the same as the ordinary income crypto tax rate, which ranges from 10% to 37%. However, if the crypto is held for more than one year, it is considered a long-term crypto capital gain and the crypto tax rate ranges from 0% to 20%, depending on the taxpayer’s income level.

How can you simplify the crypto tax calculation process? A crypto tax calculator is a tool that helps calculate crypto tax liability related to crypto transactions.

How to report your crypto on tax return

When you buy/sell coins, you are required to report any gains/losses to the IRS. Many exchanges provide reports about crypto transactions that include all activity in your account, making it easy to gather the necessary info for tax returns. However, if you have crypto transactions across multiple exchanges or wallets, the experience may be more complex.

So, to prepare your tax return, you will need to gather records of all your operations with digital currency. To simplify this process, you can use specialized tax software such as CoinTracker or TokenTax. This tax software allows you to input activity across all exchanges you use and generate a cost-basis report. However, it’s important to note that tax software may charge a fee for its service.

In the case of digital currency, the tax year for reporting is the same as for other investments. A tax year is a 12-month period for which taxes are calculated and paid. It’s important to understand the tax year in a particular jurisdiction and to file tax returns on time to avoid penalties or fines.

Conclusion about crypto taxes

If you carelessly or intentionally ignore crypto tax rules or regulations, you may owe a penalty. If you don’t pay the penalty on time, you’ll be charged interest. But what if you’re preparing your crypto taxes and realize you don’t have the money to pay? For example, you can apply for a repayment plan from the IRS (you’ll still owe, but you’ll avoid penalties for underreporting income).

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