Crypto and taxes
TSB-M-14(5)C, TSB-M-14(7)I, TSB-M-14(17)S, Taxpayer Guidance Division, New York Department of Taxation and Finance, December 5, 2014, ¶408-293
When you report this income, it’s taxed at ordinary income tax rates. These are higher than capital gains tax rates. Your basis, a tax term used to define the currency’s initial value when you received it, for the cryptocurrency you receive is the amount you report as income. When you eventually dispose of the cryptocurrency, you use that basis to calculate any capital gain you may have and pay the applicable capital gains taxes. Tax on cryptocurrency A26. If you receive cryptocurrency in a transaction facilitated by a cryptocurrency exchange, the value of the cryptocurrency is the amount that is recorded by the cryptocurrency exchange for that transaction in U.S. dollars. If the transaction is facilitated by a centralized or decentralized cryptocurrency exchange but is not recorded on a distributed ledger or is otherwise an off-chain transaction, then the fair market value is the amount the cryptocurrency was trading for on the exchange at the date and time the transaction would have been recorded on the ledger if it had been an on-chain transaction.
Selling crypto taxes
By April 18, most Americans will have voluntarily filed and paid their taxes (though Californians affected by this winter’s storms have until October). Voluntary tax compliance is essential — and fragile. We shouldn’t let crypto upend the belief that (most) others are paying their fair share as well. How do other countries handle crypto taxes? On the other hand, the long-term capital gains tax for crypto is lower for most taxpayers in the U.S., with a 0%, 15% or 20% tax rate based on your taxable income. If you earn less than $41,675 in the year 2022, including crypto gains, you pay no long-term capital gains tax.The following table demonstrates the long-term capital gains tax rates for 2022.
Understanding crypto and taxes
Any U.S. citizen that dabbled in cryptocurrency will be expected to file a tax return to the IRS when tax season comes. If I give someone cryptocurrency as a gift, is that taxable? In this scenario, one reports earnings from mining as “other income.” One will not be able to deduct expenses as you can if you are categorized as a business. That said, due to the lack of self-employment tax, taxes should be lower with this second option because cryptocurrency mining earnings are listed as “Other Income” on the tax return (i.e., as a hobby and/or additional income stream).
Capital gains on cryptocurrency
Without good recordkeeping, you may find yourself digging through old emails or scrounging around the junk drawer looking for past statements and receipts. Instead, keep an accurate ledger of all digital currency transactions and include information about dates, costs, trade partners, and the digital currency’s fair market value. You should also withhold an appropriate percentage from your proceeds to help cover potential tax payments and/or liabilities related to virtual currency. You’ll thank yourself when tax season rolls around. Recent clarification to cryptocurrency law in Portugal The IRS views mined crypto as ordinary income. Any crypto you earn from mining gets taxed at the ordinary income rate. Miners must pay taxes based on a crypto’s fair market value upon mining the coin. If you mine three Bitcoins at $20,000 each, you have to report it as $60,000 in ordinary income. If Bitcoin falls to $10,000 or rises to $30,000 while you hold onto the position, you still have to report $20,000 per coin in ordinary income. Crypto from a mining operation can push you to a higher tax bracket and impact your tax percentage on the income you made outside of crypto mining.
