In 2023, Bitcoin and other cryptocurrencies are considered equivalent to property and other stocks in the US by the IRS. Because they are similar to other capital assets and are subject to taxation. The crypto is taxed only when any transaction is done and not for holding it. Two types of taxes are imposed on cryptocurrencies i.e., income tax and capital gain tax.
The Capital Gain Tax is levied during all types of disposal of crypto such as selling crypto, exchanging one crypto for another, and spending crypto on goods and services.
When traders earn from bonuses, regular pay, mining, crypto staking, yielding, or receiving free coins, they are required to pay income tax.
US Cryptocurrency Tax Structure 2023
The cryptocurrency tax 2023 structure become more complex for professional traders.
IRS issues the guidelines for tax rates every year. If you are holding any of the cryptocurrency then It is very essential to know the current cryptocurrency tax structure of 2023 as prescribed by IRS for all traders because non-payment may result in IRS crypto tax audits or huge penalties. You may have to pay a fine of up to $250,000 for tax evasion.
Hence, the traders are liable to pay tax depending upon the particular transaction they are making with their crypto.
IRS can easily track your crypto through KYC, banking information of exchanges process, 1099 forms send by exchanges and records of crypto addresses from which the fund is withdrawn.
The specific capital gain tax rate is determined based on two factors; The amount you earn and the period from which you are holding your asset.
Short term capital Gain Tax
You will be responsible for the short-term capital gain cryptocurrency tax 2023 if you held the crypto for not more than a year and the long-term capital gain tax if held it for more than a year in the USA. A higher 28% tax may be imposed on NFTs.
37% tax is levied on short-term capital gains while 0% to 20% is levied on long-term capital gains. The rate of income tax range from 10% to 37%.
The short-term capital gain tax rate of 2023 is based on the federal income tax rate and they are 10%, 12%, 22%, 24%, 32%, 35% and 37% depending upon your taxable income and status.
Long term Capital gain tax
The long-term capital gain tax is 15% and 20% based upon the taxable income and if the earning is below $44,626, no such tax is imposed at all for the year 2023.
In the recent federal budget, President Biden has increased the rate of capital gain tax from 20% to 39.6% for those who earn more than $1 million in a year in the 2023 budget.
How to calculate capital gain tax on your crypto?
Investors can easily calculate their capital gain or loss by subtracting their cost basis from the value of an asset that is disposed of. Hence, the capital gain tax is charged every time you make a crypto transaction and earn a gain. No tax is charged on loss. To avoid the burden of calculation, you can also go for a cryptocurrency tax software. It will give you your crypto tax report in minutes with the help of your wallets and exchanges.
Methods to avoid huge taxes on cryptocurrency
The best thing is that there is some relief also which means you won’t be charged any tax during buying crypto with fiat currency, holding, moving, gifting, transferring cryptos between wallets, donating crypto and creating an NFT.
So, it is better to prefer long-term crypto trades to avoid a huge tax rate. Some of the other ways to avoid such huge taxes are tax loss harvesting and realizing profits in low-income years.
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