Crypto Taxes Explained in November 2023
The Internal Revenue Service (IRS) is very clear on crypto investments; digital assets are treated as property, meaning they’re taxed just like any other asset. Therefore, US-based investors should have a clear understanding of their crypto tax obligations.
This guide on crypto tax explains everything there is to know for US investors. Not only do we cover capital gains and income requirements, but also what rates to expect and how to keep your tax liabilities to a minimum.
The key takeaways on crypto tax in the US are as follows:
Cryptocurrencies like Bitcoin and Ethereum are unregulated financial instruments. However, the IRS treats digital assets as property, meaning they’re taxed like any other investment – such as stocks and mutual funds. Whether or not you’ll be required to pay tax depends on many different variables. Nonetheless, there are two forms of crypto tax that you need to be aware of. First, there’s capital gains tax.
Just like stocks, tax on crypto gains is only applicable to realized profits. In simple terms, this means that you’ve sold the cryptocurrencies for a profit. For instance, suppose you bought 1 Bitcoin in January 2023 for $21,000. You sold your 1 Bitcoin in April 2023 when it was worth $30,000. Therefore, your realized capital gains are $9,000. In this instance, the crypto investment was held for under 12 months, so short-term capital gains tax rates apply.
Long-term rates apply if the cryptocurrencies were held for over 12 months, just like other assets. The second tax obligation to be aware of is crypto income. The most popular income tools include staking and yield farming. Unlike capital gains, the IRS views crypto income the same as any other income stream – such as employment, stock
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