It’s 2023 and cryptocurrency has become increasingly common and accepted in society, making it an increasingly important asset to consider when filing your taxes. Cryptocurrency, like other investments, is subject to taxation, so it’s important to understand the tax brackets and implications of trading and investing in crypto. In this article, we’ll discuss what crypto tax brackets are, how they’re determined, and how to file taxes on crypto investments.
What Are Crypto Tax Brackets?
Crypto tax brackets are the same as income tax brackets and are used to calculate how much you owe in taxes on your crypto investments. The IRS considers crypto to be property, and any income you generate from trading or investing in cryptocurrency is treated as capital gains. As such, the tax brackets for crypto are the same as for capital gains.
The tax brackets for capital gains depend on your taxable income, which is the sum of your total income from wages, investments, and other sources. If you’re in the 10% or 12% tax bracket, then your long-term capital gains are taxed at 0%. If you’re in the 22%, 24%, 32%, 35%, or 37% tax bracket, then your long-term capital gains are taxed at 15%. Finally, if you’re in the 39.6% tax bracket, then your long-term capital gains are taxed at 20%.
Short-Term vs. Long-Term Gains
When it comes to crypto tax brackets, it’s important to understand the difference between short-term and long-term gains. A short-term gain is any capital gain realized within a year, while a long-term gain is any capital gain realized after a year. Short-term gains are taxed as ordinary income, so the rate is determined by your taxable income and the tax brackets discussed above. Long-term gains, on the other hand, are taxed at a lower rate. The rate depends on your taxable income, as discussed above.
How to File Crypto Taxes
Once you’ve determined your crypto tax bracket, you’ll need to file your taxes. Fortunately, filing taxes on crypto investments is relatively straightforward. You’ll need to report your trades and the gains or losses you’ve realized. You’ll then need to calculate your total gains or losses and report them on Form 1040. Be sure to include your total capital gains or losses from all sources, not just crypto.
It’s also important to remember that you must report any crypto that you’ve sold, even if you’ve realized a loss. You can use Form 8949 to report your crypto trades, and you can use software such as BitcoinTaxes to help you calculate your taxes. Finally, make sure you keep detailed records of all your trades, as you may need to provide proof of your losses or gains in the event of an audit.
Conclusion
Crypto taxes can be a bit confusing, but understanding the basics of crypto tax brackets and how to file taxes on your crypto investments can help simplify the process. Remember, crypto is treated as property, so any income you generate is subject to capital gains tax, depending on your taxable income. Short-term gains are taxed as ordinary income, while long-term gains are taxed at a lower rate. Finally, be sure to keep detailed records of all your trades and to use software such as BitcoinTaxes to help you calculate your taxes.