While there is presently very short steering on the tax of cryptocurrency, one matter is intelligibly defined. The Internal Revenue Service ( IRS ) views cryptocurrency as property for tax purposes. That means you likely received a tax document because you either experienced a capital amplification on that virtual investment in 2021 or received cryptocurrency as compensation, which the IRS considers average income .
For hardheaded purposes, the IRS has issued guidance defining cryptocurrency such as Bitcoin and Ethereum as virtual currencies. This guidance is subject to interpretation, but for most people the main things to consider from a tax perspective are :
- How long you held your Bitcoin or other cryptocurrencies from purchase to sale? If held for less than a year, any profit may be liable for short-term capital gains tax. If held for longer than a year, any profit may be liable for long-term capital gains tax.
- What is your tax filing status and taxable income? That will determine your tax bracket and the tax rate on any Bitcoin profits.
- What is your state tax rate? That will determine how much you may owe in state taxes.
Bitcoin Tax Calculator Instructions
Part 1: Enter Your Personal Details
footprint 1 : Select the tax year you would like to calculate your estimated taxes.
footstep 2 : Select your tax filing condition.
footstep 3 : Enter your taxable income excluding any profit from Bitcoin sales. For most people, this is the same as adjust crude income ( AGI ).
step 4 : Enter your state of matter ’ south tax rate.
Reading: Bitcoin Tax Calculator
Part 2: For each Bitcoin sale within a tax year
measure 1 : figure the leverage date and purchase monetary value. The purchase date can be any time up to December 31st of the tax year selected.
dance step 2 : enroll the sale date and sale price. Make sure the sale date is within the tax year selected.
measure 3 : duplicate for all Bitcoin or cryptocurrency sales within the tax year selected .
Bitcoin Tax Calculator
Example Bitcoin Tax Situation
This model calculates estimated taxes for the 2021 tax year for a person that made two sales. All values are in USD .
Person A Tax and Finance Details
2021 taxable income – 85,000
2021 Filing Status – Single
2021 State tax rate – 5 percentage
Transaction # 1
On Feb. 1, 2021, Person A sold Bitcoin for a total of $ 10,000. That Bitcoin was previously purchased on June 1, 2020 for $ 5,000. Since it was held for less than a year, the $ 5,000 profit is subjugate to short-run capital gains tax rates. Based on Person A ’ mho file status and income, the taxes are calculated as follows :
- The first $1,375 in profit is taxed at the 22 percent federal tax rate.
- The remaining $3,625 is taxed at the 24 percent federal tax rate.
- The entire $5,000 is taxed at the 5 percent state tax rate.
$ 1,375 X 22 percentage ( $ 302.50 ) + $ 3,625 x 24 percentage ( $ 870 ) = $ 1,172.50 federal taxes owed on short-run capital gains
$ 5,000 x 5 percentage = $ 250 state taxes
$ 1,172.50 + $250 = $1,423 entire tax indebtedness for transaction # 1 ( rounded up )
Transaction # 2
On Mach 1, 2021, Person A sells Bitcoin for a sum of $ 10,000. That Bitcoin was purchased on Feb. 1, 2017 for $ 3,000. Since it was held for longer than a year, the $ 7,000 profit is subject to long-run das kapital gains tax. In summation, Person A ’ randomness taxable income is now calculated at $ 90,000 to include the income from the former sale. The taxes are calculated as follows :
- The entire $7,000 is taxed at the 15 percent long-term capital gains tax rate.
- The entire $7,000 is taxed at the 5 percent state tax bracket.
$ 7,000 X 15 percentage = $ 1,050 federal taxes owed on long-run capital gains
$ 7,000 X 5 percentage = $ 350 state taxes owed
$ 1,050 + $ 350 = $1,400 full tax liability for transaction # 2
total Taxes Owed
Since both long-run and short-run das kapital gains are plus, the sum taxes owed are calculated as follows :
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$ 1,173 union shortstop term capital gains + $ 1,050 federal hanker term capital gains + $ 600 state taxes owed = $2,823 total taxes owed
This article is for informational purposes alone and not legal or fiscal advice .