USA Crypto Tax Guide 2023
The US tax deadline is looming. You need to file and pay any taxes due on your crypto by April 18. We’ve teamed up with crypto tax calculator Koinly to help you nail your crypto taxes fast!
The IRS tax return deadline is just around the corner, and you’ll need to report your crypto investments and pay any tax due as part of your tax return, by April 18.
But navigating the IRS guidance on crypto tax isn’t always easy - especially when they’ve issued new guidance on NFTs just recently! That’s why we’ve teamed up with crypto tax calculator, Koinly, to help you learn everything you need to know about USA crypto tax in our crash course. Let’s go!
The IRS views crypto as a kind of capital asset - like stocks or property. This view dictates the tax treatment in most instances - but there are a couple of quirky rules for NFTs we’ll cover shortly.
Capital assets, including crypto, may be subject to Capital Gains Tax or Income Tax depending on the specific transaction you’ve made.
Crypto Capital Gains
When you dispose of a capital asset, you may pay Capital Gains Tax on any gain you make as a result of the transaction. Disposals of crypto include:
Selling crypto for USD or another fiat currency.
Swapping crypto for another cryptocurrency.
Spending crypto on goods or services.
Potentially a variety of DeFi investment activities where you receive liquidity pool tokens in exchange for capital.
If you make a gain from any of the above transactions, you’ll pay Capital Gains Tax on that gain if you’re over the Capital Gains Tax allowance.
Of course, not every disposal will result in a gain, especially throughout the recent bear market. If you make a loss when you sell, swap, or spend crypto, you’ll have a capital loss.
You don’t pay tax on capital losses, and they’re actually good news for your tax bill as you can offset losses against gains to reduce your overall tax bill. Even better still, if you have more losses than gains, you can offset an additional $3,000 in capital losses each year against ordinary income. If you still have losses, you can carry them forward to offset against future gains.
How much Capital Gains Tax will you pay?
Want to know how much tax you’ll pay on your crypto gains? The amount of tax you’ll pay depends on how long you’ve held your asset, how much you make in total a year, and the kind of asset.
For crypto - including tokens, stablecoins, and NFTs - that you’ve held for less than a year, you’ll pay the short-term Capital Gains Tax rate on any gain, which are the same tax rates as the Federal Income Tax rates, so you’ll pay whatever tax rate you usually pay on income on any gain. Here are the Federal Income Tax rates for the 2022 financial year:
For crypto - including tokens, stablecoins, and some NFTs - that you’ve held for more than a year, you’ll pay the long-term Capital Gains Tax rate on any gain, which is between 0% to 20% depending on your total annual income. Here are the Capital Gains Tax rates for the 2022 financial year:
An important note for NFT investors specifically - for NFTs you’ve held more than a year, you may pay a higher 28% collectibles Capital Gains Tax rate if your NFT is deemed to be a collectible.
This is due to new guidance from the IRS that states that some NFTs may be considered collectibles if the underlying asset the NFT represents is determined to be a collectible based on existing guidance under IRC Section 408(m). Under this guidance, collectibles include works of art, metals and gems (with limited exceptions), stamps and coins (with limited exceptions), and more. So if you dispose of an NFT you held for more than a year, deemed a collectible by the IRS, you’ll pay 28% tax on any gain instead of the maximum 20% you’d pay on other crypto assets.
Crypto Income
With capital gains and losses out the way, let’s take a look at crypto income.
The IRS has some guidance on when crypto is considered income, including:
Getting paid in crypto
Mining rewards
Airdrops - including airdrops as a result of a hard fork.
Whenever you’re seen to be earning income from crypto, you’ll pay Income Tax (at your usual rate) based on the fair market value of your crypto in USD at the point you received it.
Of course, there are some common transactions not included in the guidance above - such as staking rewards and a variety of DeFi investment activities - and just because the IRS hasn’t issued guidance yet, doesn’t mean you won’t pay tax on these investment activities. You should always seek the advice of an experienced crypto accountant for guidance on your investment activities, but generally speaking, any time you’re earning new coins or tokens, they may potentially be subject to Income Tax.
Another notable exception around this generalization is for NFTs - specifically for creators minting and selling NFTs. If you’re creating and selling NFTs - like an artist selling paintings - this may also be subject to Income Tax.
How much Income Tax will you pay?
It all depends on your total annual income and the band you fall into, and how you file. You can see the Federal Income Tax rates for 2022 below:
Are any crypto transactions tax-free?
Yes, it’s not all bad news, there are some instances where you won’t pay tax on your crypto, including:
Buying crypto with fiat currency like USD.
HODLing crypto.
Transferring crypto between your own wallets - although transfer fees may not be.
Gifting crypto.
Donating crypto - this is tax deductible!
When to file crypto taxes
You need to report any capital gains, losses, or income from crypto in your annual tax return by April 18, 2023.
How to file crypto taxes
You’ll report capital gains and losses from crypto in Form 8949 and Schedule D. You’ll need to report each disposal and the subsequent gain or loss in Form 8949, and your net capital gain or loss in Schedule D.
For income, you’ll report this in Form Schedule 1 (1040) or Form Schedule C (1040) depending on your employment status.
Of course, you can also use tax apps like TurboTax, TaxAct, and H&R Block to report your crypto taxes online instead.
How to calculate & file crypto taxes with our partner Koinly
The IRS requirements make calculating and reporting your crypto investments time-consuming - especially for active investors with many transactions. You need to report every single time you sold, swapped, or spent crypto throughout the financial year and calculate the subsequent gain or loss for each transaction, as well as identify the fair market value of any crypto income in USD on the day you received it.
This is why NiceHash has partnered with Koinly to help you file in minutes and make crypto less taxing. Here’s how it works in five simple steps:
Sign up or log in to your Koinly account.
Connect NiceHash to Koinly. You can do this automatically via API, or by uploading a CSV file of your NiceHash transaction history, learn more.
Sync all the other wallets, exchanges, blockchains, and services you use with Koinly via API or CSV file. Koinly supports more than 700 platforms.
Koinly calculates your tax liability, including the fair market value of any income and your capital gains and losses. Koinly supports multiple cost-basis methods allowed by the IRS including FIFO, HIFO, and LIFO.
Download your tax report. Upgrade to a paid Koinly plan when you need to download your report. Koinly can generate a variety of reports for US investors including the IRS Form 8949 and Schedule D, TurboTax Report, Complete Tax Report, and more. Use your report to file your preferred way!
0 Comments