USA Crypto Tax Guide
US citizens who profited from cryptocurrencies during the tax year will need to report this to the IRS and pay any tax due. Failure to do so may result in a hefty financial penalty, so it’s important to report your activities accurately.
If you’re not sure what to report or how, then this guide is for you. Let’s delve into the IRS’ guidance on cryptocurrency and how to get your tax return right this year.
Do I Need to Pay Tax on Crypto in the USA
Whether you need to pay any tax and how much will depend on your income and the nature of your activities. The USA has separate taxes for income and capital gains. Let’s take a look at which activities are taxable and which tax applies.
Investing and Trading
Although there is no tax on buying cryptocurrencies, you will need to pay Capital Gains Tax whenever you “dispose” of them. A disposal could mean selling your crypto for fiat, swapping it for another cryptocurrency, or using it to pay for goods and services. The tax doesn’t apply to the entire amount you receive from a disposal, just the profit you make from it.
Mining
If you receive crypto from mining, it will be subject to Income Tax. You will also need to pay Capital Gains Tax if you later dispose of the crypto you mined. If you’re a self-employed operator of a mining business, you will need to pay Self Employment Tax as well.
Staking
The IRS doesn’t have any specific guidance on staking. It has long been assumed that staking rewards would be taxed similarly to mining rewards. However, this could change as a court case claiming that staking rewards should be viewed as the creation of new property could mean that only Capital Gains Tax will apply in future.
DeFi
Although the IRS hasn’t issued guidance on specific DeFi activities, you will still need to pay Income Tax when you earn crypto and Capital Gains Tax when you dispose of it. This means that interest and rewards earned through DeFi staking, yield faroming, or play-to-earn protocols will be subject to Income Tax.
Meanwhile, if you profit from DeFi margin trading and options protocols, or dispose of your crypto DeFi rewards, this will trigger Capital Gains Tax.
If you profit from providing liquidity to DeFi protocols, this will result in Income Tax if you earn new coins or Capital Gains Tax if you increase the value of one asset. When adding or removing liquidity to or from DeFi pools, this may result in Capital Gains Tax if you receive new tokens or exchange tokens in the process.
Airdrops and Forks
If you receive coins from an airdrop or a fork, they will be considered income and so you will need to pay Income Tax on them based on the fair market value of the coins on the day you receive them. If you later dispose of coins received from an airdrop or fork, this will also trigger Capital Gains Tax.
NFTs
If you purchase an NFT with fiat currency, there will be no tax, while if you buy an NFT with crypto, this counts as a disposal of your crypto and will trigger Capital Gains Tax. You will also need to pay Capital Gains Tax when you sell an NFT you have bought.
You won’t need to pay any tax to create your own NFT. If you sell it, this will trigger Income Tax, but you may be able to add any minting costs to your cost basis.
Earning in Crypto
If your employer pays you crypto as remuneration for services, this will be subject to Income Tax, while if you receive crypto for performing services as an independent contractor, you will need to pay Self Employment Tax. Use the fair market value of the crypto in US dollars on the date you received it to calculate the amount of tax owed.
Allowable Expenses
The following expenses count towards your cost basis and so can be deducted from any profits before tax is applied
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Transaction fees
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Brokerage commissions
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Exchange fees
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NFT minting costs
How Much Tax do I Need to Pay?
How much tax you’ll need to pay will depend on your income. Let’s take a look at the tax rates in detail below.
Capital Gains Tax
The tax rates for capital gains are different depending on how long you held your crypto before disposing of it.
The short-term Capital Gains Tax rates for crypto held for one year or less are as follows for 2022.
|
Tax rate |
Single filer |
Head of household |
Married couple filing jointly |
Married couple filing separately |
|
10% |
Up to $10,275 |
Up to $14,650 |
Up to $20,550 |
Up to $10,275 |
|
12% |
$10,276 – $41,775 |
$14,651 – $55,900 |
$20,551 – $83,550 |
$10,276 – $41,775 |
|
22% |
$41,776 – $89,075 |
$55,901 – $89,050 |
$83,551 – $178,150 |
$41,776 – $89,075 |
|
24% |
$89,076 – $170,050 |
$89,051 – $170,050 |
$178,151 – $340,100 |
$89,076 – $170,050 |
|
32% |
$170,051 – $215,950 |
$170,051 – $215,950 |
$340,101 – $431,900 |
$170,051 – $215,950 |
|
35% |
$215,951 – $539,900 |
$215,951 – $539,900 |
$431,901 – $647,850 |
$215,951 – $323,925 |
|
37% |
$539,901 and above |
$539,901 and above |
$647,851 and above |
$323,926 and above |
The long-term Capital Gains Tax rates for crypto held for more than a year are as follows.
|
Tax rate |
Single filer |
Head of household |
Married couple filing jointly |
Married couple filing separately |
|
0% |
Up to $41,675 |
Up to $55,800 |
Up to $83,350 |
Up to $41,675 |
|
15% |
$41,676 – $459,750 |
$55,801 – $488,500 |
$83,351 – $517,200 |
$41,676 – $258,600 |
|
20% |
$459,751 and above |
$488,501 and above |
$517,201 and above |
$258,601 and above |
Income Tax
If you earned any income from crypto during the 2022 tax year, add this to your other income to see which tax band you fall into for Income Tax. The rates for Income tax are the same as those for short-term Capital Gains Tax.
How Do I Calculate My Taxes?
You will need to keep track of all your transactions throughout the tax year and identify whether they are subject to Income Tax or Capital Gains Tax to find which of the above tax rates apply to you.
The simplest method of doing this is to use tax software. The software will record all the transactions on your behalf, do any difficult calculations required for the cost basis method of your choice, and even generate a tax report for you.
It’s important to report your activities accurately to avoid a financial penalty. Tax software will automatically store and update your transaction history—even if your exchange loses or deletes this data. If you decide to keep records manually, the IRS requires the following information for each transaction.
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Date
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Fair market value in US dollars on date of acquisition
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Fair market value in US dollars on date of disposal
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Receipts for purchase and sale
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Amount of capital gain or loss made
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Type of transaction and parties involved
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Transaction records for all your exchanges and wallets
When calculating your cost basis, the IRS allows you to use any one of the following methods.
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FIFO (First In, First Out)
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LIFO (Last In, First Out)
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HIFO (Highest In, First Out)
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Spec ID (Specific Identification)
You can find out more about cost basis in our useful links section. If you use tax software, you can select the cost basis method you wish to use and the software will apply it to your transactions for you.
Tax Software
1. CoinTracker
CoinTracker is our top choice for calculating your crypto and NFT taxes. Its clear layout makes it easy to see your portfolio allocation and investment performance in real time, while CoinTracker’s cost basis optimisation and tax-loss harvesting tools will help you save money year-round.
2. Koinly
Koinly makes it simple to import your trades, track your portfolio, and generate tax reports. With over 300 wallets and exchanges supported and a variety of price tiers available—including a free version—Koinly is popular with a wide range of crypto traders and investors.
3. TokenTax
TokenTax provides a full suite of crypto tax services, with access to teams of experts and deep industry knowledge as well as their tax accounting software. There are different plans to suit hobbyists and professionals, with a tax-loss harvesting dashboard and all the tax forms you need.
How to Pay Crypto Taxes in the USA
You can pay the right amount of tax and avoid a penalty by following these simple steps.
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Maintain accurate records. Keep records of all your transactions during the financial year, including all the information in the bullet point list above. Alternatively, register with one of the above software providers which will do this for you.
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Calculate your taxes. Identify whether your profits are capital or income and select a cost basis method to find out which tax band you fall into. Your tax software will do all this for you.
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Complete your tax return. Report your capital gains and losses on Form 8949 and Schedule D (Form 1040). Report any crypto income on Schedule 1 (Form 1040) as an individual or Schedule C (Form 1040) as a business.
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File your tax return. The deadline for filing your 2022 tax return is 15 April 2023. You can submit a paper return by mail or submit your return electronically.
- Pay your taxes. Pay any tax you owe by 15 April 2023. This is also the deadline for the first quarterly estimated payment if you’re self-employed. You can pay online with a range of payment methods.