As the popularity of cryptocurrencies continues to grow, more and more people are wondering how they are taxed. For US taxpayers, figuring out what is and isn’t taxable can be a bit confusing. In this blog post, we provide a guide on how to pay taxes on cryptocurrencies. We’ll cover everything from applicable taxes to reporting your transactions. So if you’re looking for information on taxes and cryptos, you’ve come to the right place!
How are cryptocurrencies taxed in the US?
The IRS treats cryptocurrencies as property for tax purposes. This means that any gains or losses you make on your cryptocurrency investments will be taxed as capital gains or losses. If you hold your crypto for more than a year, you will be taxed at the long-term capital gains rate, which is currently 20%. However, if you hold your crypto for less than a year, you will be taxed at your normal income tax rate, which can be higher than 20%. (this can be up to 37 percent from 2022 depending on total income)
In addition to capital gains taxes, you may also owe taxes on any interest or dividends your cryptocurrency generates. For example, if you own a bitcoin and it goes up in value, you will have to owe taxes on the gain if you sell it. Similarly, if you own a cryptocurrency that pays dividends, you owe taxes on those dividends.
Finally, if you use your cryptocurrency to purchase goods or services, you may also be subject to sales tax. For example, if you buy a new car with Bitcoin, you will owe taxes on the purchase price of the car.
How do I report my cryptocurrency taxes?
If you realized gains or losses from your cryptocurrency investments, you must file a Form 8949 with your annual tax return. This form is used to report capital gains and losses from all types of real estate, including cryptocurrencies. On Form 8949, you must list each transaction that resulted in a gain or loss. For each transaction, you must provide the date of the transaction, the type of cryptos involved, the number of units sold, and the sale price.
If you received interest or dividends from your cryptocurrency holdings, you must declare that income on your tax return. The IRS has a special form for reporting interest and dividends called Form W Taxes on Crypto DIV. On this form you must list each payer and the amount of interest or dividends you have received from them.
Finally, if you used cryptocurrency to purchase goods or services, you may need to file a state sales tax return. This depends on which state you live in. For example, in the state of New York, taxpayers purchasing with bitcoin must pay sales tax on the purchase price of the item.
In summary, taxes on cryptocurrency can be a bit confusing. However, if you follow the guidelines outlined in this blog post, you should be able to file your tax return with confidence. If you have any other questions about taxes and cryptos, please feel free to contact us. We’re happy to help! Thank you for reading!