You don’t have to pay taxes if you keep them as investments and don’t sell them or use them to buy goods or services. However, you will have to pay capital gains taxes on the profits you make if you sell cryptocurrency. The tax rate you pay is determined when you’ve held cryptos and your marginal tax bracket. This article will go over everything you need to know about when you have to pay tax on cryptocurrency in the United States.
When Are U.S. Citizens Expected to Pay Crypto Taxes?
The Internal Revenue Service (IRS) has released guidance on how it plans to treat digital currencies for tax purposes. Cryptocurrency-related capital gains tax events according to the IRS include:
- Buying and Selling cryptocurrency with fiat currency
- Exchanging one cryptocurrency for another cryptocurrency
- Making or receiving cryptocurrency as payment for goods or services
- Giving a gift of anything over $15,000 in cryptocurrency
How Should You Prepare for The Upcoming Crypto Tax Season in The United States?
The fair market value of your cryptocurrency on the date you acquired it must be reported. If you paid $1,000 for one bitcoin on January 1, 2017, you would report that as income on your tax return. You should also report any fees or commissions you paid purchasing the cryptocurrency.
You would have a capital gain of $14,000 if you sold one bitcoin for $15,000 on December 31, 2017. You’d have to report it on your tax return and pay tax at your marginal rate.
You can track your cryptocurrency transactions and calculate your capital gains and losses with CoinTracking.
How Much Crypto Tax Do You Have to Pay in The U.S.?
The answer to this question depends on a few factors, including how much money you make in a year and your marginal tax bracket. If you are in the 10% tax bracket, you will pay 10% tax on your short-term capital gains. If you are in the 37% tax bracket, you will pay 37% tax on your short-term gains. Long-term gains rates are lower than marginal tax rates, and most people spend a 15% rate.
- Long-term gains; This type of capital gains tax is for investments you have held on to longer than a year.
- Short-term gains; This type of capital gains tax is for investments you have only had for less than a year.
The above-mentioned types of gains taxes are subject to your marginal tax rate.
You will need to report any fair market values of your cryptocurrency on the date you acquired it. So, if you bought one bitcoin on January 1, 2017, for $1,000, you would report that as income on your tax return. You will also need to report any fees or commissions you paid to acquire the cryptocurrency.
If you sold one bitcoin on December 31, 2017, for $15,000, you would have a capital gain of $14,000. You would report this on your tax return and would be taxed at your marginal tax rate.
Taxpayers in the United States must report cryptocurrency transactions on their tax returns. Your tax bill gets determined by your marginal tax rate and the time you have held the cryptocurrency. You can track your transactions and calculate your capital gains and losses with CoinTracking.