How is cryptocurrency taxed in the US?

Cryptocurrency can be considered as a form of payment in some cases and an investment in other cases. According to IRS cryptocurrency transactions are taxable like transactions in any other property, therefore they might have to be reported on tax returns.

The IRS treats Bitcoin and other cryptocurrencies as “property”. Therefore, they are treated like capital gains treatment similar to traditional assets like stocks and bonds.

In some cases, anyway, they are treated as income, so they are subject to income tax.

Some examples:

if cryptocurrency is received through a marketing promotion it is considered: taxable income;

if it’s received as payment for goods or services, it is considered taxable income;

if it’s sold to realize an investment gain, taxes are owed on the gain, as it happens with stocks.

Also, if one cryptocurrency is converted into another, taxes are owed on any gains on the transactions. Taxes are owed only if you realize a profit.

For example, if you buy 100$ in cryptocurrency and sell it at 150$, you have a gain of 150$ and that would be the taxable gain for IRS. If you buy $100 and sell it for $80 you don’t have to pay taxes. You could even utilize the loss to compensate for other investment gains.

The amount of taxes on capital gains also depends on how long you’ve held the cryptocurrency.

If it’s less than one year, the profits are considered short-term capital gains. They would be taxed at the normal income tax rate.

If it’s more than one year, the profits would be considered long-term capital gains, and they would be taxed at another rate, lower, which depends on the annual income you have.

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