How’s your crypto journey going so far this year?
Did you receive crypto rewards from your exchange? Did you finally sell your HODL Bitcoin? Or did you step into day trading?
Before we go any further, let’s be all clear: cryptocurrency is taxed and should be reported on your tax return. This leaves us with one question: how much are cryptocurrency taxes?
Wherever you’re sailing in the sea of crypto, we’ll guide you to the right crypto tax rates for your income in this article.
Crypto Capital Gains Tax Rate
According to the IRS, cryptocurrency is treated as property for tax purposes. At the same time, cryptocurrency’s tax implications are very similar to those of securities and stocks.
This means if you sell your crypto at a profit, you are likely subject to capital gains tax.
Crypto capital gains can be organized into short-term and long-term gains based on the holding period of the relevant crypto. The “holding period” simply means the total length of time from the moment you buy the crypto to the moment you sell it or exchange it.
A capital gain is short-term if the holding period is no more than one year, and long-term if the holding period exceeds one year.
Crypto Tax 1. Long-Term Crypto Capital Gains Tax Brackets
In order to find out the long-term crypto capital gains tax you may owe, you need to know your 2021 taxable income because different capital gains tax rates are applicable depending on your taxable income brackets. Please note that the following tax rate table only includes long-term capital gains.
Crypto Tax 2. Short-Term Crypto Capital Gains and Other Crypto Income Tax Brackets
Higher tax rates are applicable to short-term crypto capital gains. These tax rates are generally known as ordinary income tax rates. A number of taxable crypto income, such as giveaway rewards, airdrops, hard-forks, and etc, short-term capital gains, are subject to ordinary income tax rates.
Check out the table below to see which tax rate you would land on based on your 2021 taxable income.
As you can see here, short-term capital gains can be taxed up to 37% while long-term capital gains can only go up to 20%. If you’ve been an avid day-trader with big crypto capital gains this year, don’t be too worried yet. There are some crypto tax-saving strategies that could help you.
Crypto Tax 3. Net Investment Income Tax
High-income taxpayers have to also pay a 3.8% net investment income tax (NIIT) on investment income such as interest, dividends, and crypto capital gains. This tax applies on either your net investment income or the amount that your modified adjusted gross income (MAGI) exceeds the following thresholds set by the IRS.
Single/head of household - $200,000
Married filing jointly - $250,000
Married filing separately - $125,000
Qualifying widow(er) with child - $250,000
Crypto Tax 4. State and Local Taxes
On top of that, you may also have to pay state and local taxes depending on where you live. Some states like Florida and Washington do not tax personal income or capital gains, but most states do impose a tax of about 5%. California, New York, and Vermont are known to impose a tax of up to 13.3%.
Most states don’t care if the capital gains are short-term and long-term, and instead tax them all at the ordinary income tax rate. However, some states do have different regulations for taxing capital gains - if you’re prepping to sell anything and to calculate your profits and losses, make sure you understand your local tax laws.
Keeping up with all of these tax numbers and new developments in crypto tax law can get very complicated if you’re not a tax expert. We get that. That is why your friends at Cointelli are here to help you. Our crypto tax software will take care of the hardest parts of preparing the relevant crypto tax reports for you.
Not sure how to start preparing your crypto tax report? Learn more here.
Got any crypto tax questions? Ask us on Twitter! Our co-founder & crypto tax expert Daniel @Cointelli_Dan will answer you directly!