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If you’re wondering how much you’ll be taxed on your cryptocurrency earnings, the answer isn’t as simple as you might think. The tax implications of digital currency can be confusing, but we’re here to help clear things up.
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Taxes on Crypto
It’s no secret that crypto can be a great way to earn some extra income, but what you might not know is that you can also be taxed on your earnings. In this article, we’ll outline how much you can expect to be taxed on your crypto earnings.
Short-term vs. long-term capital gains
When it comes to taxes on cryptocurrency, the IRS treats crypto as property, not currency. This means that if you buy crypto and sell it within a year, you’ll be taxed as if you had made a short-term capital gain. Short-term capital gains are taxed at your marginal tax rate, which depends on how much money you make in a year. For example, if you are in the 22% marginal tax bracket, your short-term capital gains will be taxed at 22%.
If you hold your crypto for more than a year before selling it, you’ll be taxed at the long-term capital gains rate, which is lower than the marginal tax rate. The long-term capital gains tax rate is either 0%, 15%, or 20%, depending on your income.
Federal vs. state taxes
The United States has a decentralized system when it comes to taxing cryptocurrency. That means that both federal and state governments can levy taxes on crypto assets. The IRS considers cryptocurrencies to be property, so they are subject to capital gains taxes. If you hold crypto for less than a year, you’ll pay short-term capital gains taxes, which are the same rates as your ordinary income tax bracket. If you hold crypto for longer than a year, you’ll pay long-term capital gains taxes, which are lower than your ordinary income tax bracket.
In addition to capital gains taxes, you may also have to pay state taxes on your cryptocurrency holdings. As of 2019, only a handful of states have explicit laws around cryptocurrency taxation, but the number is growing. Some states treat crypto as property, like the IRS, while others treat it as currency.
If you live in a state with no explicit laws around crypto taxation, it’s best to err on the side of caution and treat your crypto as property subject to capital gains taxes. Check with a tax professional in your state if you’re not sure how to file your taxes.
How to Calculate Your Taxes
If you made any money off of cryptocurrency last year, you may be wondering how much you’ll be taxed on it. The answer isn’t as simple as you may think. There are a few different things that you need to take into account. In this article, we’ll go over everything that you need to know in order to calculate your taxes.
Use a crypto tax calculator
If you want to find out how much you owe in taxes on your crypto holdings, the best way to do it is to use a crypto tax calculator. These calculators take into account factors such as the amount of crypto you hold, when you bought it, and when you sold it, and then calculate the appropriate taxes owed.
There are a number of different crypto tax calculators available, so be sure to do your research and find one that meets your needs. Some popular options include CoinTracking.info, CryptoTaxCalculator.io, and Bitcoin.tax.
Keep a detailed record of all your crypto transactions
It’s important to keep a detailed record of all your crypto transactions. This includes the date, time, amount, type of currency, price and any other relevant details. Remember, if you don’t have a record of your transactions, the IRS can treat them as income and tax you accordingly.
The most important thing to remember is that you are responsible for paying taxes on your crypto gains. There is no free pass just because crypto is new or different. So do yourself a favor and make sure you stay on the right side of the law.
Tips for Minimizing Your Taxes
When it comes to crypto, you need to be mindful of the taxes you’ll have to pay. This is because the IRS views crypto as property, and thus you are subject to capital gains tax. The good news is that there are some strategies you can use to minimize your taxes. In this article, we’ll cover some of the best tips for minimizing your taxes on crypto.
Use a crypto tax-loss harvesting tool
If you are serious about crypto trading and want to minimize your taxes, consider using a crypto tax-loss harvesting tool. This type of tool can help you automatically calculate andoptimize your tax liability on your trades.
There are a few different crypto tax-loss harvesting tools available, so do some research to find the one that best suits your needs. Some popular options include CryptoTrader.tax, Shrimpy, and CoinTracker.
Use a crypto tax-deferred account
Crypto taxes can be a pain, but there are ways to minimize them. One way is to use a crypto tax-deferred account. With this type of account, you don’t have to pay taxes on your crypto gains until you withdraw the money. This can be a great way to defer taxes on your crypto earnings.
Conclusion
Based on the information we gathered, it appears that most people will be taxed on their crypto profits at a rate of 15-20%. However, it’s important to keep in mind that these rates can vary depending on individual circumstances. If you have any doubt about how you should be taxed on your crypto profits, we recommend speaking to a certified tax professional.
