If you held that specific amount of cryptocurrency for less than one year and it appreciated, the gain is taxed at your income tax level. Imagine you bought one Bitcoin (BTC) for about $3,700 in early 2019. In late February 2022, 1 BTC was worth $38,500, which you could have used to buy a car. So, you’re getting taxed three times when you use a mined cryptocurrency if its value has increased-income tax, sales tax, and capital gains tax. If you held it longer than one year, it would be taxed at your capital gains rate.

Because you’re paid in cryptocurrency, you must report any capital gains or losses if you use or convert the cryptocurrency. You’ll need to report any gains or losses on the crypto you converted. Many exchanges help crypto traders keep all this information organized by offering free exports of all trading data. To be accurate when you’re reporting your taxes, you’ll need to be somewhat more organized throughout the year than someone who doesn’t have cryptocurrency. Exchanging one cryptocurrency for another also exposes you to taxes. The trader, or the trader’s tax professional, can use this to determine the trader’s taxes due. For example, if you buy one crypto with another, you’re essentially converting one to fiat and then purchasing another.

When Is Cryptocurrency Taxed? However, there is much to unpack regarding how cryptocurrency is taxed because you may or may not owe taxes in given situations. This also means any profits or income from your cryptocurrency is taxable. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. This means that they act as a medium of exchange, a store of value, a unit of account, and can be substituted for real money. Most cryptocurrencies are convertible virtual currencies. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

Crypto Trading Time

When exchanging cryptocurrency for fiat money, you’ll need to know the cost basis of the virtual coin you’re selling. Cryptocurrency miners verify transactions in cryptocurrency and add them to the blockchain. The amount left over is the taxable amount if you have a gain or the reportable amount if you have a loss. When you exchange your crypto for cash, you subtract the cost basis from the crypto‘s fair market value at the time of the transaction to get the capital gains or losses. The cost basis for cryptocurrency is the total price in fees and money you paid. The rules are different for those who mine cryptocurrency.

Tax software that allows users to generate inventory reports and account for cryptocurrency transactions can also help taxpayers understand their basis and reporting requirements. In plain language, this means that taxpayers must allocate all basis from assets acquired before Jan. 1, 2025, to all assets held in a single account or to specific assets in one account. They will also need to ensure they report these transactions at tax time to the IRS or face significant fines or jail time if they are caught not reporting. All users and investors will need to record every transaction’s date, time, and amount. Alternatively, basis can be transferred to specific assets using a rule such as FIFO.

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