Cryptocurrency is still very popular in 2023. In fact, about one in five Americans have invested in, traded, or used cryptocurrency. If you are included in that group, then we want to make sure your crypto taxes are covered properly.

The IRS considered cryptocurrency “property” for federal income tax purposes. It can be taxed as ordinary income or capital gains, depending on how you received it.

Mining, staking, lending, or payments for goods or services are considered ordinary income and are taxed at a rate that corresponds to your gross income, ranging from 10% to 37%.

Crypto trades, sales, or swaps are taxed as capital gains. Like stocks, the length in which you hold your crypto will determine how much capital gains tax you will owe.

For crypto held less than one year you will pay short-term capital gains, which ranges from 10% to 37%. For crypto held longer than one year, you will pay long-term capital gains, which ranges from 0% to 20%. For both short-term and long-term capital gains tax, the percentage you owe will be determined by your income level. The higher your income the more you will owe.

It is important to note, you will only owe capital gains tax on the difference in value between when you purchased and sold your crypto. So it you bought $100 of Bitcoin, and sold it when your share was valued at $105, you would owe capital gains tax on the $5 difference.

There is more good news. Any losses you take on crypto, selling assets lower than you purchased them, can offset other capital gains and lower tax liability. Also, any donations given through crypto to 501(c)3 non-profits are tax deductible as well. So, if there is an organization you want to support, you can send your money and lower your tax liability.

Our office can make the often-complex process of documenting crypto currency easy with our knowledge and expertise. Give us a call at (402) 932-8815 for more information.

Sincerely,

W.E. Stevens PC