Bitcoin Cryptocurrency
Source: Pixabay

Did You Sell Cryptocurrency in 2021? It Could Impact Your Tax Bill

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Nov. 22 2021, Published 10:27 a.m. ET

With the significant surge in the value of various cryptocurrencies, including Bitcoin and Ethereum, crypto traders and enthusiasts may be wondering about tax implications. As with profits on stock investments, the additional income you get from crypto could increase your tax bill. How is crypto taxed in the U.S.?

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You might owe taxes on cryptocurrencies in a variety of ways, and even trading one cryptocurrency for another is a taxable event. While cryptocurrencies are still relatively new, the IRS is working hard to ensure that they're taxed properly.

Is crypto taxed in the U.S.?

Cryptocurrency is subject to taxation. The IRS published a notification in 2014 indicating that crypto is property, not currency, for tax purposes. When you sell, trade, or dispose of digital currency in any way and make a profit, you must pay taxes. For example, if you purchase $2,000 of cryptocurrency and then sell it for $2,200, you must declare and pay taxes on the $200 profit. If you recognize a loss, you can deduct and lower your taxable income.

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how is crypto taxed in the us
Source: Pixabay

There must be a taxable event, such as selling Bitcoin. You can purchase and hold digital currency without paying taxes, even if the value rises. Taxpayers must respond to a question on Form 1040 that asks if they had any form of transaction associated with cryptocurrency throughout the year. Crypto income is taxed at its fair market value on the day it's received by the taxpayer.

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how is crypto taxed in the us
Source: Pixabay

What's the crypto tax rate for 2021?

The tax rate on cryptocurrency is based on your tax filing status and taxable income, as well as the holding period of the digital currency before selling it. If you possessed it for fewer than 365 days, you must pay short-term gain taxes. These are the same tax rates that apply to ordinary income. The crypto tax brackets for these short-term gains in 2021 are as follows.

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For individual single taxpayers:

  • 10 percent for income up to $9,950.
  • 12 percent for income between $9,951 and $40,525.
  • 22 percent for income between $40,526 and $86,375.
  • 24 percent for income between $86,376 and $164,925.
  • 32 percent for income between $164,926 and $209,425.
  • 35 percent for income between $209,426 and $523,600.
  • 37 percent for income over $523,600.

For married couples filing jointly:

  • 10 percent for income up to $19,900.
  • 12 percent for income between $19,901 and $81,050.
  • 22 percent for income between $81,051 and $172,750.
  • 24 percent for income between $172,751 and $329,850.
  • 32 percent for income between $329,851 and $418,850.
  • 35 percent for income between $418,851 and $628,300.
  • 37 percent for income over $628,300.
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If you hold your investment for more than a year, you'll pay long-term capital gain taxes. The crypto tax brackets for these long-term gains in 2021 are as follows:

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For individual single taxpayers:

  • 0 percent for income up to $40,400.
  • 15 percent for income between $40,401 and $445,850.
  • 20 percent for income over $445,850.

For married couples filing jointly:

  • 0 percent for income up to $80,800.
  • 15 percent for income between $80,801 and $501,600.
  • 20 percent for income over $501,600.
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