Taxability of Cryptocurrency
Are Cryptocurrency Profits Taxable? Cryptocurrency is currently a hot topic and the IRS has been hard at work trying to establish guidelines for its use and taxation. Cryptocurrency refers to digital or virtual currency which is traded and exchanged electronically. There are many tax implications that come with cryptocurrency, one of which is whether or not it is taxable in 2022.
One of the big factors that determine whether or not capital gains on cryptocurrency are taxable in 2022 is the length of ownership of the coin (or token). For example, if a single person holds a coin for a year and sells it immediately after the tax man gets a hold of it, then that person does not have to pay any capital gains tax (though it is still taxable). If the coin is held by an LLC and traded, then the LLC will need to determine if the capital gains are taxable.
Another factor that can determine whether or not you pay tax on your cryptocurrency is the amount of the capital gains. If the capital gains on your asset are less than $200,000, then you generally won’t have to pay any tax on it.
You can find more information about this on the IRS website: https://www.irs.gov/
Now, the tax rate for capital gains can be different between states. This is due to how your state treats taxing income and gains. But, in general, most states tax capital gains at a lower rate than regular income. This can be good or bad depending on your particular situation. The IRS has a good tool to help you figure out your tax liability.
As others have said, you will almost certainly pay capital gains tax but generally at a lower rate than would be the case for ordinary income.
Income or Capital Gain
While most people think the opposite, there are indeed taxes on cryptocurrency. In the United States, cryptocurrencies are taxed as a personal property and also as a commodity.
The government views cryptocurrencies as property and not fiat currency because they can be exchanged for goods and services. Cryptocurrency is treated like stocks and bonds, which means that it is classified as capital gain and is taxed at a lower rate than income.
Cryptocurrencies are taxed as a commodity if they are mined or purchased on the open market on an exchange or if they are bought with fiat currency, which the government views as the equivalent to U.S. dollars. I
n the words of U.S. Senator Tom Harkin, “The federal government treats virtual currency the way it treats property, as a commodity.”
For most people, this means that the profits from selling their cryptocurrency holdings are taxable at capital gains rate with most people paying between 15-20% tax on them.
Bottom Line
So, in the end, selling your cryptocurrency on a platform like Coinbase (or other platform) would, for most people, be a bad idea as it would result in you paying high taxes on the profits, while not getting the benefits of capital gains tax.
