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Taxation of Cryptocurrencies by the IRS

Mar 03, 2023

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Although it isn't currently the most intriguing aspect of investing in cryptocurrencies, you must be informed of how cryptocurrencies are taxed if you choose to do so. The surges and dips in the value of the crypto coins over the previous five years have caused a lot of noise about crypto, but the IRS is still cautious. Although cryptocurrencies are still a relatively new idea, the IRS is working to ensure that they are taxed properly, and the regulations are attempting to keep up with the rate of technological advancement.

The simple act of exchanging one cryptocurrency for another is a taxable event, and there are several other ways that cryptocurrency taxes may be owed. Keeping records is a smart idea since it makes it easier for you to identify and monitor all of your income and expenses come tax season. You will learn how to file bitcoin taxes, as well as the federal tax rates and other critical information pertaining to this complicated topic.

Are cryptocurrency transactions taxed in the US?


Cryptocurrencies are subject to taxation. Any form of cryptocurrency asset has been classified as property by the IRS. Therefore, it only follows that any transactions involving it will be subject to taxation, just like those involving other types of property. There must first be a taxable event, such as the sale of bitcoin. When you use the coins for economic activity, you must pay taxes. You’ll have to pay taxes when you make a profit after selling, trading, or otherwise just disposing of cryptocurrency assets like ethereum.

Here's an illustration to help you comprehend this. If you purchased $1,000 worth of ethereum and sold it for $1,200, the $200 profit must be disclosed, and all associated taxes must be paid.

You can mark a transaction as a tax loss when you sell a crypto asset for less than the amount you originally acquired and lose money. Cryptocurrency purchases are not in and of themselves taxed. Even if bitcoin's value rises, you can still buy it and keep it without paying taxes.

How to tell if you owe cryptocurrency taxes: You owe cryptocurrency taxes if you spend bitcoin and its value has increased since you bought it. The following is a list of the many categories of taxable events for bitcoin transactions, including exchanging cryptocurrencies and using bitcoins to pay for goods and services. A fiat currency exchange occurs when you exchange a cryptocurrency for fiat money.

If your bitcoin's value has increased, this is only a taxable event. To determine if you owe cryptocurrency taxes, you must know your cost basis, or the total amount you paid for your bitcoin. Then you compare it to the price you paid for the cryptocurrency and the profit you made after selling it.

Revenue from cryptocurrencies taxed?


Cryptocurrency revenue is taxed as regular income when it is received by the taxpayer, at its fair market value. The following are some of the most prevalent examples of cryptocurrency earnings:

Receiving payment for a service in cryptocurrency

Benefiting from bitcoin mining

The benefits of staking cryptocurrencies

Generating income via cryptocurrency loans

Paying for cryptocurrency capital gains?


The IRS taxes crypto currency the same way it taxes property. This means that cryptocurrencies, like ethereum, will receive a tax rate similar to stocks and other types of property like real-estate, a classic collectible car, etc. You must pay taxes on any profits you make after selling or otherwise getting rid of cryptocurrency. Capital gains from stocks and cryptocurrency are taxed at the same rate.

For this reason, you have a chance of getting a higher return when you invest in cryptocurrencies. Around the world, there are different tax laws and regulatory frameworks governing bitcoin and other digital assets.

There’s a much faster way to accurately file and pay you taxes using the FlyFin app. You can download this app especially when you're working as an independent contractor, a freelancer, or self-employed person to help you ease your tax filing. The software instantly determines your business deduction, and the web version of the app also includes a number of tax calculators. Additionally, you get access to a wealth of tax resources, such as understanding on 1099 forms like the 1099-K and 1040-ES as well as other tax topics like the SECA tax, etc.