More than 10% of Americans traded cryptocurrency in the previous year, and many are concerned about how their behavior may affect their taxes. The IRS (Internal Revenue Service) and state tax authorities in the United States must be informed of cryptocurrency sales, conversions, payments, and income. This article explains when you must pay taxes on cryptocurrency and how your activities might affect those taxes.
The Internal Revenue Service (IRS) is the revenue service for the United States’ federal government. It collects taxes and enforces the Internal Revenue Code, which is the central part of the federal statutory tax law.
Cryptocurrencies such as Bitcoin and Ether are subject to capital gains tax restrictions. The amount of capital gains taxes you owe depends on whether you’ve owned your bitcoin for less than a year or more than a year. If you bought your coins more than a year ago, you might be eligible for a long-term capital gains rate that is lower than most income taxes.
If you’re a taxpayer in the United States, you’re undoubtedly familiar with seeing your federal and state income taxes taken from your pay stubs. You’ll generally owe the income tax rate applicable to your tax bracket when you file it. As a cryptocurrency owner, you are also subject to these taxes (such as mining, staking, and awards). These taxes are often not withheld or deducted.
When is crypto not taxable?
- Receiving a gift
You will not pay taxes on cryptocurrency until you trade it or engage in another taxable activity, such as staking.
- Giving a gift
You can give up to $15,000 per recipient each year tax-free. Gifts may include cryptocurrency sent to someone else without making a purchase for goods or services.