Aofex

Bitcoin Taxes: Are There Taxes on Bitcoins?

UTC by Andy Watson · 5 min read
Bitcoin Taxes: Are There Taxes on Bitcoins?
Photo: Depositphotos

Read this article to learn everything about the types of Bitcoin taxes, how they are calculated and how you must report them.

Filing and reporting taxes can be a tricky process. And when it comes to Bitcoin taxes, it gets even more complicated. If you’re new to the crypto space, your mind can be clouded with questions like, what are Bitcoin taxes, who have to pay Bitcoin taxes, and how to report these taxes?

In this article, we’ll answer all these questions so that you can easily file and report your taxes without facing any troubles.

Bitcoin Taxes

According to the Internal Revenue Service, cryptocurrency has no legal tender status and is thus, for federal tax issues, it is treated as property. In the case of property, the profits made are subject to either of the following

  • Ordinary income
  • Capital gains taxes

Since virtual currency, like Bitcoin, when invested, received, or mined, generates profit, they are also subject to taxes or Bitcoin taxes.

Who Has to Pay Bitcoin Taxes?

Any cryptocurrency owner or holder who has incurred capital gains on exchanging Bitcoin for fiat currency, other cryptocurrencies, or other assets, must pay federal income tax.

How can one determine this?

Crypto holders or owners must determine the loss or gain on their transactions by calculating the fair market value (FMV) and the cost basis.

Types Of Bitcoin Taxes

Now that you know that there are taxes on Bitcoin, you must understand which category you fall under. As mentioned in the case of property, the types of taxes for Bitcoin are similar, since cryptocurrency, too, is considered as property by the IRS.

  • Ordinary income: When you do not hold cryptocurrency as your capital asset, you will need to pay ordinary income tax.
  • Capital gains taxes: When you hold cryptocurrency as your capital asset, the way you hold traditional bonds and stocks, you will have to pay capital gains taxes. The capital gains taxes depend on the holding period of your Bitcoin and are classified as short-term capital gains tax and long-term capital gains tax. In 2021, the short-term capital gains range from 10% to 37%, whereas the long-term capital gains range from 0% to 20%.

Are All Crypto Transactions Taxable?

There are taxes on Bitcoin. But not all Bitcoin transactions are taxable. Here’s a summarization of the taxable and the non-taxable events:

Taxable Events

  • Sell crypto for fiat currency
  • Trading one crypto for another
  • Buying goods and services using crypto
  • Receive crypto due to airdrop, hard fork, or exchange for goods and services

Non-Taxable Events

  • Buying crypto using fiat currency
  • Donating crypto for tax-exemption
  • Transfer crypto from one wallet to another
  • Gifting cryptocurrency

Reporting Bitcoin Taxes

Filing and reporting taxes in itself can be a complicated task, and crypto taxes are even more cumbersome. However, the rising number of crypto apps and exchanges is making it easier to report Bitcoin taxes. Most crypto exchanges like Coinbase and others, provide users with a 1099-MISC form and a list of their transaction history. This will help them calculate their gains and losses in a said financial year, and make it easier for them to report Bitcoin taxes.

Many crypto apps come with a built-in tax calculator to further make your task easier. Zenledger, for example, has a dedicated section with all the integrated exchanges that file common IRS tax forms such as Form 8949 as well as Schedule D. Apart from filing taxes, you can also automate tax-loss harvesting in order to offset your tax liabilities.

The Bottom Line

Bitcoin taxes can be a tricky task. And with the IRS introducing new regulations, it can be hard for anyone to keep up with them. The rising number of crypto tax software can not only help you report taxes but also harvest your tax losses.

Sign up for ZenLedger for free today to see how simple it is to complete your crypto taxes with our automated software!

FAQs

  • Are there taxes on Bitcoin?

According to the Internal Revenue Service, cryptocurrency has no legal tender status and is thus, for federal tax issues, it is treated as property. Since virtual currency, like Bitcoin, when invested, received, or mined, generates profit, they are also subject to taxes or Bitcoin taxes.

  • What is capital gains tax?

When you hold cryptocurrency as your capital asset, the way you hold traditional bonds and stocks, you will have to pay capital gains taxes. The capital gains taxes depend on the holding period of your Bitcoin and are classified as short-term capital gains tax and long-term capital gains tax. In 2021, the short-term capital gains range from 10% to 37%, whereas the long-term capital gains range from 0% to 20%.

  • Is gifting crypto taxable?

No, gifting crypto assets is not taxable. You can gift your crypto assets up to $15,000, above which is taxable with a carryover basis.

  • Do Bitcoin miners have to pay taxes?

Bitcoin miners have to pay self-employment taxes. But they can deduct any mining expenses on their tax returns.

Work It
Andy Watson
Author Andy Watson

Please check out latest news, expert comments and industry insights from Coinspeaker's contributors.

Related Articles