Pay Taxes on Crypto?
Yes, you’ll pay tax on cryptocurrency in the US – and pretty much any other country in the world too.
In the US, cryptocurrency isn’t viewed as a currency. Instead, it’s viewed as property – just like a share or a rental property.
Can the IRS Track Crypto?
Yes – the IRS can track crypto.
So if you’re asking yourself do you have to pay taxes on crypto gains? Can the IRS really know about my crypto investments? Stop right there.
The IRS have confirmed they’re working with crypto exchanges like Coinbase, Binance US and Kraken to share customer information to ensure crypto investors are reporting their crypto gains and income accurately. Coinbase in particular has confirmed they send Form 1099-MISC to any investor who made more than $600 in a financial year and that they send this form to both the investor and the IRS.
Though we’ve singled out the crypto exchanges above, the reality is any crypto exchanges that uses Know Your Customer (KYC) identification may be asked to share this information with the IRS.
The IRS is using this information to send out letters to American crypto investors to remind them to report their crypto transactions and pay their crypto taxes, as well as to conduct audits and seize assets from those avoiding taxes.
The best way to stay tax compliant is to report your crypto taxes accurately to the IRS.
Capital Gains Tax on Crypto
Because crypto is viewed as a capital asset from a tax perspective, anytime you dispose of crypto, you’ll pay Capital Gains Tax. There are four ways you can dispose of your cryptocurrency in the US:
- Selling crypto for fiat currency.
- Swapping crypto for crypto.
- Spending crypto on goods or services.
- Gifting crypto (over the $15,000 threshold for 2021, this has changed to $16,000 for 2022)
You won’t pay Capital Gains Tax on the entire proceeds of a crypto disposal – only any capital gain (profit) you made as a result of a disposal.
Crypto Capital Gains Tax rate
There isn’t a specific crypto tax rate. It’s all based off the Capital Gains Tax rules. The Capital Gains Tax rate you’ll pay on your crypto depends on how long you’ve held your asset for and how much you earn. If you’ve held it for less than a year, you’ll pay the short-term Capital Gains Tax rate. If you’ve held it for more than a year, you’ll pay the long-term Capital Gains Tax rate.
For short-term capital gains, you’ll pay the same tax rate as you do on your regular income. This is based off the Federal Income Tax rate brackets. For 2021 to 2022 these are:
| Tax Rate | Single | Head of Household | Married filing jointly | Married filing separately |
|---|---|---|---|---|
| 10% | $0 – $9,950 | $0 – $14,200 | $0 – $19,900 | $0 – $9,950 |
| 12% | $9,951 – $40,525 | $14,201 – $54,200 | $19,901 – $81,050 | $9,951 – $40,525 |
| 22% | $40,526 – $86,375 | $54,201 – $86,350 | $81,051 – $172,750 | $40,526 – $86,375 |
| 24% | $86,376 – $164,925 | $86,351 – $164,900 | $172,751 – $329,850 | $86,376 – $164,925 |
| 32% | $164,926 – $209,425 | $164,901 – $209,400 | $329,851 – $418,850 | $164,926 – $209,425 |
| 35% | $209,426 – $523,600 | $209,401 – $523,600 | $418,851 – $628,300 | $209,426 – $314,150 |
| 37% | $523,601+ | $523,601+ | $628,301+ | $314,151+ |
Long-term Capital Gains Tax rate
Meanwhile, long-term Capital Gains Tax for crypto is generally much lower. The long-term Capital Gains Tax rates for 2021 to 2022 are:
| Tax Rate | Single | Head of Household | Married filing jointly | Married filing separately |
|---|---|---|---|---|
| 15% | $40,401 – $445,850 | $80,801 – $501,600 | $54,101 – $473,750 | $40,401 – $250,800 |
| 20% | $445,850+ | $501,600+ | $473,750+ | $250,800+ |
The IRS has just made a couple of announcements about tax rates for the 2022 financial year, so starting from the 1st of January 2022.
The standard deduction is rising:
- For single taxpayers and married individuals filing separately for the 2022 tax year, the standard deduction is rising to $12,950.
- For married couples filing jointly for the 2022 tax year, the standard deduction is rising to $25,900.
- For heads of households filing for the 2022 tax year, the standard deduction will be $19,400.
The tax rates and income brackets are changing for the 2022 financial year. The new tax rates for 2022 are as follows:
- 10% on income of $10,275 or less ($20,550 for married couples filing jointly).
- 12% for income over $10,275 ($20,550 for married couples filing jointly).
- 22% for income over $41,775 ($83,550 for married couples filing jointly).
- 24% for incomes over $89,075 ($178,150 for married couples filing jointly).
- 32% for incomes over $170,050 ($340,100 for married couples filing jointly).
- 35%, for incomes over $215,950 ($431,900 for married couples filing jointly).
- The top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).
These tax rates don’t apply retrospectively for the 2021 financial year – so when you’re filing your taxes in April 2022, use the tax rates in the tables above. Review your own financial situation with a financial advisor for optimizing & reporting your crypto tax.
Note that all trading strategies are to be used at your own risk. Before trading, we recommend to make sure that you have a clear understanding of cryptocurrencies and how they are traded.