How is Crypto Taxed in the US?

If you’re like most people, you probably have a lot of questions about how crypto is taxed in the US. Here’s a quick rundown of the basics to help you understand the basics of crypto taxation.

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Short-Term Gains

Short-term gains on cryptocurrency are taxed as regular income at the federal level, and most states treat short-term gains from cryptocurrency like any other income. The current long-term capital gains tax rates are 0%, 15%, or 20%, depending on your tax bracket. You are only taxed on long-term capital gains if you hold the asset for more than a year before selling it.

Long-Term Gains

For long-term gains, you’re taxed at the federal Capital Gains rate, which is either 0%, 15%, or 20% depending on your tax bracket.

Exchanges

In the United States, cryptocurrency is taxed as property. If you buy cryptocurrency as an investment, you will have to pay capital gains tax on any profits when you sell it. If you use cryptocurrency to pay for goods or services, you will have to pay taxes on the amount that you spend.

Cryptocurrency exchanges are subject to the same laws as other financial institutions. They must report transactions to the Internal Revenue Service (IRS) and they may be required to collect and remit taxes on behalf of their customers.

There is no specific guidance from the IRS on how to treat cryptocurrency transactions, so it is up to each exchange to determine how to handle taxes. Some exchanges choose to simply defer to the customer, while others build tax compliance into their platform.

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Coinbase is one of the most popular cryptocurrency exchanges in the United States. Coinbase allows customers to buy and sell cryptocurrencies, but they do not currently support spending or withdrawals in US dollars. For US customers, Coinbase only supports buying and selling of four cryptocurrencies: Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.

Taxes

Cryptocurrency is taxed as property in the United States. This means that every time you buy, sell, or trade cryptocurrency, you are required to report your gains or losses to the IRS.

If you hold cryptocurrency for more than one year, you will be taxed at the long-term capital gains rate. For most people, this is 20%. If you hold cryptocurrency for less than one year, you will be taxed at your marginal tax rate. For most people, this is between 10% and 37%.

In addition to capital gains taxes, you may also be liable for state and local income taxes. For example, if you live in California and trade cryptocurrency on a regular basis, you may be subject to the state’s capital gains tax.

If you have any questions about how cryptocurrency is taxed in the United States, we recommend speaking with a tax professional.

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