How is crypto taxed in the USA?

Crypto taxation is not the pleasant part of investing, but if you want to do this activity, you must be aware of how crypto is taxed.

Nowadays, the growth and popularity of the cryptocurrency market have led to the fact that many countries are beginning to regulate it and introduce taxes on cryptocurrency transactions. One of such countries that is trying to regulate the cryptocurrency market is the United States of America.

Let’s take a look at the taxation system of the crypto industry using the example of the United States.

Crypto taxation is controlled by the Internal Revenue Service (IRS) in the USA. Despite the fact that cryptocurrency investments have not existed for so long, the IRS is making every effort to ensure compliance with crypto taxation.

There are plenty of crypto transactions that are taxed. If you don’t maintain accurate records, it can be difficult to match your taxes on crypto gains and losses. In the case, you don’t make payment for taxes on crypto, you can pay costly fines.

Thus, the Cryptorobotics team decided to provide you with this guide to help get the necessary information that you should know about crypto taxation on trading and profit. You will get knowledge about filing crypto taxes, crypto tax rates, and other crucial details regarding this complex subject.

How does crypto get taxed in the USA?

Every trader and investor is obliged to pay crypto taxes. The IRS categorizes digital coins as property, and transactions with cryptocurrency are subject to taxation by law as transactions concerning any other property. Taxes are levied when you sell, exchange or dispose of cryptocurrency in any way, and you recognize a profit. For instance, if you purchase $1,000 of crypto and later sell it for $1,500, it is necessary to report and pay a tax at a rate of $500 on the profit. If you are not making a profit on your coin, and conversely, incur a significant loss, you can deduct this from your taxes.

Purchasing crypto isn’t taxed. You are able to buy and hold cryptocurrency without paying any taxes, even if the price of the coin grows. In order to be taxed, you should make a taxable event first, such as selling the cryptocurrency.

The IRS has been taking the necessary measures to ensure traders and investors pay their crypto taxes. Tax filers must complete Form 1040. Here crypto investors must specify information concerning if they have had any transactions related to cryptocurrency during the year.

Crypto exchanges are obligated to file a Form 1099-K for clients who made more than 200 transactions and entered trades of more than $20,000 during the current year. Moreover, the IRS’s summons was sent to crypto exchanges to search investors who got a profit of at least $20,000 in cryptocurrency transactions from the period of 2016 to 2020.

What are the US crypto tax rates in 2021?

Crypto tax rates are based on your profit, tax filing status, and how long you have owned your cryptocurrency before selling it. If you have owned the crypto for 365 days or less, then you should make a payment of short-term gains taxes, which are the same as income taxes. If you have owned crypto for a longer time, then it is necessary to make payment of long-term gains taxes.

Let’s take a closer look at crypto tax rates on long-term gains in 2021:

Here are the crypto tax brackets on the short-term gains in 2021:

It is worth noting that it is better to sell older coins first to pay the lower long-term gains tax rates. Suppose you’ve been purchasing BTC on a regular basis for the past two years, and now you want to sell a few coins. If you sell Bitcoin that you’ve had for over 12 months, it will be deemed a long-term gain, and you’ll make payment of a lower crypto tax rate on it.

How to determine if you have to pay cryptocurrency taxes?

You are required to pay crypto taxes if you make any transactions with the help of your coins, and the price of your coin has grown since you bought it.

Here are the different types of taxable events for cryptocurrency transactions:

• Selling virtual currency for fiat currency.
• Making a payment with cryptocurrency for services or goods.
• Trading different types of cryptocurrency.

You should pay these cryptocurrency taxes for all these transactions if the cost of your crypto has moved up. To find out if you have to pay cryptocurrency taxes, you need the initial price of the coin that was paid for it. Then you have to compare it to the sales price or proceeds when you used the crypto.

Imagine you earlier purchased one BTC for $20,000. Here are several examples of crypto taxation:

• If you sell one BTC per $50,000, you’d report $30,000 in gains.
• If you spend one bitcoin to buy a $45,000 car, you’d report $25,000 in gains.

Trading digital coins is a rather complicated process of taxation. Cryptocurrency trading is a taxable event. If you exchange one cryptocurrency for another, you must report any gains in USD on your tax return.

Whenever you trade cryptocurrencies, you should follow how much you got a profit or loss in USD. Thus, you will have the ability to provide accurate information about your profit and loss from cryptocurrency.

How to report cryptocurrency on taxes in the USA?

Cryptocurrency profits and losses are specified on Form 8949. To complete this form, you should specify the following data about your cryptocurrency transactions:

• Cryptocurrency name.
• The date you purchased the coin.
• The date you sold, traded, or otherwise disposed of your crypto.
• Revenue or sales price.
• Cost basis.
• Total profit or loss.

You should repeat these actions with every taxable cryptocurrency event you have had during the current year.