Investments in cryptocurrencies and bitcoins are expanding rapidly. In the past two years, 51% of Americans who hold bitcoin purchased it for the first time. New investors still have worries about what to do with cryptocurrencies and how it is taxed, despite the fact that interest in it is constantly increasing and the IRS has released additional information on virtual currency.
You could have a number of questions about how crypto is taxed and how you can calculate your taxes, especially if you are new to the crypto market.
To help you out a little, there’s a tool you can use to estimate the crypto taxes you incur and it is called a cryptocurrency tax calculator. But before we deep dive into the cryptocurrency tax calculator, let’s understand how cryptocurrency is taxed.
One thing is definitely established, despite the fact that there are now very few guidelines on the taxes of cryptocurrencies like bitcoin. For taxation reasons, the Internal Revenue Service (IRS) considers cryptocurrencies to be property. Because you either realized a capital gain on that virtual asset in 2022 or earned cryptocurrencies as payment, which the IRS classifies as ordinary income, you’ll probably get a tax record.
The IRS has issued guidance categorizing cryptocurrencies like Bitcoin and Ethereum as virtual currencies for all practical purposes.
Although this advice is open to interpretation, for the majority of people the key tax considerations are:
- How long did it take you to sell your Bitcoin or other cryptocurrencies after buying it? Profits that were held for less than a year can be subject to short-term capital gains tax. Profits that are retained for more than a year may be subject to long-term capital gains tax.
- What are your taxable income and tax filing status? Your tax bracket and the tax rate on any Bitcoin profits will be determined by this.
- How much does your state tax? That will decide how much state taxes you might owe.
As it is clear by now, calculating your crypto taxes can be very difficult! But one tool can make it easy for you — enter the cryptocurrency tax calculator.
Cryptocurrency Tax Calculator
If you acquired your cryptocurrency through purchase, as a service payment, or in exchange for goods, a cryptocurrency tax calculator will help you calculate your taxes on your sales.
There are a number of cryptocurrency tax calculators out there, such as ZenLedger offers a free cryptocurrency tax calculator.
How to Use a Cryptocurrency Tax Calculator
Provide Your Personal Information
- Choose the tax year for which you want to estimate your taxes.
- Decide how you will file your taxes.
- Enter the amount of your taxable income that is free of any Bitcoin sales profits. This is equivalent to adjusted gross income for most persons (AGI).
- Enter the tax rate for your state.
For each Bitcoin transaction made within a tax year.
- Type the purchase price and date. The purchase date may occur at any point between now and December 31 of the chosen tax year.
- Enter the date and price of the sale. Verify that the sale date is within the selected tax year.
- Repeat this procedure for any Bitcoin or cryptocurrency sales made within the designated tax year.
How much is crypto taxed in the US?
Short-term capital gains and cryptocurrency income are subject to a tax of up to 37%, while long-term capital gains are subject to a tax of 0% to 20%. The amount of tax you’ll pay on cryptocurrency in the USA is determined by your income, the particular transaction, and the length of time you’ve owned the asset.
Do I pay taxes on crypto if I lost money?
According to IRS Notice 2014-21, the IRS views cryptocurrencies as property, necessitating the reporting of capital gains and losses on Schedule D and Form 8949 when needed.
Do I have to pay taxes on crypto under $500?
When you purchase, trade, or otherwise dispose of cryptocurrencies and realize a gain, taxes are required. For instance, if you spend $1,000 on cryptocurrency and sell it for $1,500 later, the $500 profit must be reported and taxed. You can write off any losses you incur while selling cryptocurrencies when filing your taxes.