In case you are a U.S. resident who invested in Bitcoin or different cryptocurrencies in 2021, you could have just lately obtained a tax doc from the buying and selling platform or cryptocurrency change you employ and will must pay taxes.
Whereas there’s presently little or no steerage on the taxation of cryptocurrency, one factor is clearly outlined. The Inside Income Service (IRS) views cryptocurrency as property for tax functions. Meaning you doubtless obtained a tax doc since you both skilled a capital acquire on that digital funding in 2021 or obtained cryptocurrency as compensation, which the IRS considers extraordinary revenue.
For sensible functions, the IRS has issued steerage defining cryptocurrency akin to Bitcoin and Ethereum as digital currencies. This steerage is topic to interpretation, however for most individuals the principle issues to contemplate from a tax perspective are:
- How lengthy you held your Bitcoin or different cryptocurrencies from buy to sale? If held for lower than a yr, any revenue could also be accountable for short-term capital features tax. If held for longer than a yr, any revenue could also be accountable for long-term capital features tax.
- What’s your tax submitting standing and taxable revenue? That can decide your tax bracket and the tax fee on any Bitcoin income.
- What’s your state tax fee? That can decide how a lot you could owe in state taxes.
Bitcoin Tax Calculator Directions
Half 1: Enter Your Private Particulars
Step 1: Choose the tax yr you want to calculate your estimated taxes.
Step 2: Choose your tax submitting standing.
Step 3: Enter your taxable revenue excluding any revenue from Bitcoin gross sales. For most individuals, this is identical as adjusted gross revenue (AGI).
Step 4: Enter your state’s tax fee.
Half 2: For every Bitcoin sale inside a tax yr
Step 1: Enter the acquisition date and buy value. The acquisition date may be any time as much as December thirty first of the tax yr chosen.
Step 2: Enter the sale date and sale value. Be certain the sale date is inside the tax yr chosen.
Step 3: Repeat for all Bitcoin or cryptocurrency gross sales inside the tax yr chosen.
Bitcoin Tax Calculator
Instance Bitcoin Tax State of affairs
This instance calculates estimated taxes for the 2021 tax yr for an individual that made two gross sales. All values are in USD.
Particular person A Tax and Finance Particulars
2021 Taxable revenue – 85,000
2021 Submitting Standing – Single
2021 State tax fee – 5 %
Transaction #1
On Feb. 1, 2021, Particular person A offered Bitcoin for a complete of $10,000. That Bitcoin was beforehand bought on June 1, 2020 for $5,000. Because it was held for lower than a yr, the $5,000 revenue is topic to short-term capital features tax charges. Primarily based on Particular person A’s submitting standing and revenue, the taxes are calculated as follows:
- The primary $1,375 in revenue is taxed on the 22 % federal tax fee.
- The remaining $3,625 is taxed on the 24 % federal tax fee.
- The whole $5,000 is taxed on the 5 % state tax fee.
$1,375 X 22 % ($302.50) + $3,625 x 24 % ($870) = $1,172.50 federal taxes owed on short-term capital features
$5,000 x 5 % = $250 state taxes
$1,172.50 + $250 = $1,423 complete tax legal responsibility for transaction #1 (rounded up)
Transaction #2
On Mach 1, 2021, Particular person A sells Bitcoin for a complete of $10,000. That Bitcoin was bought on Feb. 1, 2017 for $3,000. Because it was held for longer than a yr, the $7,000 revenue is topic to long-term capital features tax. As well as, Particular person A’s taxable revenue is now calculated at $90,000 to incorporate the revenue from the earlier sale. The taxes are calculated as follows:
- The whole $7,000 is taxed on the 15 % long-term capital features tax fee.
- The whole $7,000 is taxed on the 5 % state tax bracket.
$7,000 X 15 % = $1,050 federal taxes owed on long-term capital features
$7,000 X 5 % = $350 state taxes owed
$1,050 + $350 = $1,400 complete tax legal responsibility for transaction #2
Complete Taxes Owed
Since each long-term and short-term capital features are constructive, the whole taxes owed are calculated as follows:
$1,173 federal quick time period capital features + $1,050 federal long run capital features + $600 state taxes owed = $2,823 complete taxes owed
