What you need to know about crypto taxes – Marketingwithanoy

maybe you are one of the millions of Americans who jumped on the Bitcoin train in 2021. Or maybe you have become an active crypto trader. Or maybe digital currency bonuses have become part of your compensation package at work. You may have even used some of it to buy something or pay someone else for their services.

You may have thought that cryptocurrencies are not physical currencies; they are not even regulated by the US government. That means I don’t have to pay taxes on the profits I make trading crypto, right?


While the US tax authorities’ rules around crypto are vague in many areas, they have made it clear that virtual currencies are treated as an investable asset for tax reporting purposes.

Taxable gains and losses

For calculating taxable gains and losses, crypto transactions are treated exactly the same as transactions with stocks, bonds or mutual funds.

  • If you sell crypto for more than you paid for it, the gain will be taxed as a short-term capital gain if you owned the currency for less than a year. In general, people try to avoid short-term capital gains because they are taxed as ordinary income.
  • If you make a profit by selling crypto that you have owned for more than a year, it will be taxed as a more preferred long-term capital gain. The tax rate is zero, 15% or 20%, depending on your income.
  • If you sell crypto for less than what you paid for it, you can take a capital loss, which can lower your taxable income or offset capital gains from the sale of other assets.

If you often trade crypto, your options for using capital losses to offset capital gains may be limited.

Seems relatively simple, right? But what if you traded Bitcoin, Ethereum or other cryptocurrencies all year round, profiting from some trades and losing money to others?

Will Your Crypto Exchange Help You Accurately Calculate How Much You Owe Uncle Sam?

The answer is: it depends.

Fuzzy tax support

Since crypto exchanges are not regulated by the U.S. Securities and Exchange Commission, they are not required by law to provide the same level of tax reporting that discount brokers and custodians are required to provide to investors in stocks, bonds, and mutual funds.

While some US-based crypto exchanges provide basic statements of taxable proceeds from crypto-related trading activities, many do not.

And to our knowledge, none currently generate IRS Forms 1099-B and 8949, which brokerage firms and custodians provide to consumers to help them report income and capital gains and losses from the sale of investable assets.

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