Long-term capital gains rates range from 0% to 15% to 20%, depending on income levels, and may include an additional 3.8% surcharge for filers with more than $200,000 in modified adjusted gross income or investment gains.Īs a capital asset, crypto losses can offset gains in investments like stocks or real estate. Short-term capital gains are taxed as ordinary income, which applies to crypto sold within a year of purchase. At the most basic level, crypto is subject to capital-gains tax on net profits from a sale.
In some ways, it shouldn’t be hard to comply with Internal Revenue Service rules. Taxpayers face potential penalties or prosecution if they willfully neglect to report all of their income or profits off crypto. Taxpayers must now check a box on their return, declaring whether they’ve transacted or had a “financial interest” in a virtual currency.
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The government also aims to crack down on taxpayers who may underreport gains. Starting in 2024, anyone receiving more than $10,000 in crypto for a product or service will have to report identifying details about the sender of the crypto, just as they would a cash transaction over that amount. Digital wallets, used for holding crypto assets, along with decentralized platforms for lending and trading cryptos, may have to report tax information to brokerages that may then issue tax forms with more transaction records. The government expects to raise $28 billion over 10 years by tracking and taxing crypto transactions. Congress included several tax-reporting requirements for brokerages and businesses in the infrastructure bill that President Joe Biden recently signed.
One thing is clear: Washington views crypto as a large and growing new source of tax revenue. Indeed, crypto taxation can be complicated, depending on how investors trade, use, and manage their holdings. And if you’ve earned interest by lending or “staking” tokens, that interest is taxable, just like interest from a bond or bank account. So, selling can incur significant capital-gains taxes, especially if you’ve owned coins for a year or less. The government taxes crypto like any other investment-in other words, it’s considered an asset, like a stock, and not a currency. While the profits may have enriched crypto owners, taxes may be coming due soon, and the situation isn’t clear cut. Solana, another major coin, is ahead 13,300%, while the “joke” token Dogecoin has gained 49,000%. Bitcoin and Ethereum, the two largest cryptos, are up 100% and 470% this year, respectively. Investors in cryptocurrencies may be sitting on big profits.
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