There are three ways that your crypto transactions may be taxed:
Capital gains tax: Selling your crypto, trading your crypto for another cryptocurrency, using your crypto to buy goods and services. Your tax rate depends on how much you earned during the year and how long you held your cryptocurrency. If you earned cryptocurrency income or disposed of your crypto after less than 12 months of holding, you’ll pay tax between 10-37% (ordinary tax rates). If you dispose of your cryptocurrency after 12 months of holding, you’ll pay tax between 0-20% (long term capital gains tax).
Income tax: Earning crypto from staking, mining, referrals from an exchange, or as compensation for labor. You’ll pay tax between 10-37% (ordinary tax rates).
Self-employment tax: If the mining constitutes a trade or business and the mining activity is not undertaken by the taxpayer as an employee, the net earnings from this activity (gross earnings less allowable deductions) is self-employment income and subject to self-employment tax. Also, FMV (Fair Market Value) of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, is self-employment income and subject to self-employment tax. In addition to the ordinary income tax rates, you’ll pay a SE tax of 15.3% on your net earnings after multiplying by .9235.
Please make sure that you include your crypto transactions in your federal tax return, if you need help please consult a tax professional.
Author: Carlos Nazario CPA JD your TAX-Man. All rights reserved.