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When it comes to selling crypto, one of the key questions is: how much tax will you pay? In this blog post, we’ll explore the answer to that question and give you some tips on how to minimize your tax liability.
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Introduction
When it comes to selling crypto, taxes are a necessary evil. No one wants to pay them, but the IRS doesn’t care about your personal financial situation. If you make money on a crypto sale, they want their cut.
The good news is that crypto taxes are relatively simple. Unlike stocks or other investments, there are no capital gains or losses to calculate. You simply pay taxes on the total amount of money you made from the sale.
However, there are still a few things to keep in mind when it comes to crypto taxes. In this article, we’ll walk you through everything you need to know about how much tax you’ll pay when selling crypto.
Short-term vs. long-term capital gains
When you sell cryptocurrency, you may be liable for capital gains taxes. The main factor determining whether you will owe taxes on your gains is the length of time you held the crypto.
If you held the crypto for less than a year before selling, any gains are considered short-term capital gains and are taxed at your ordinary income tax rate. If you held the crypto for more than a year, your gains are considered long-term capital gains and are taxed at a lower rate.
The exact amount of tax you owe will depend on your marginal tax bracket. For example, if you are in the 25% tax bracket, you will owe 25% in taxes on your long-term capital gains. If you are in the 10% tax bracket, you will only owe 10% in taxes on your long-term capital gains.
Of course, there are other factors that can affect how much tax you owe on your crypto gains, such as whether you used the crypto for personal or business purposes. But in general, the two main factors to consider are the length of time you held the crypto and your marginal tax bracket.
How to calculate your tax liability
When you sell cryptocurrency, you need to calculate your gain or loss to see if you owe taxes on the transaction. To calculate your gain or loss, you will need to know the following:
-The price you paid for the cryptocurrency
-The price you sold the cryptocurrency for
-The amount of cryptocurrency you sold
Once you have this information, you can use it to fill out Form 8949, which is used for reporting capital gains and losses from the sale of property. On Form 8949, you will list each sale of cryptocurrency separately. For each sale, you will need to report the date of the sale, the price you sold the cryptocurrency for, the cost basis (the price you paid for the cryptocurrency), and the gain or loss from the sale.
If you have multiple sales of cryptocurrency within a short period of time (less than a year), you may be able to use the special treatment for short-term capital gains and losses. This treatment allows you to treat all of your short-term gains and losses as one long-term gain or loss. To qualify for this treatment, all of your sales must have been made within a year of each other. You also cannot have sold any other assets during this period (such as stocks or mutual funds).
What if you don’t pay your taxes?
The IRS has stated that they believe that less than 1% of all taxpayers are reporting their cryptocurrency gains and losses. This means that there is a huge amount of uncollected taxes every year. If you don’t pay your taxes, you could be subject to penalties and interest, and you may even be audited by the IRS.
Conclusion
When you sell cryptocurrency, you are liable for capital gains tax. The amount of tax you pay depends on your marginal tax rate. If you are in the 10% or 12% tax bracket, you will pay no capital gains tax on your crypto sales. If you are in the 22%, 24%, 32%, 35%, or 37% tax bracket, you will pay long-term capital gains tax on your crypto sales.
