Understanding Cryptocurrency Taxes: How to Calculate Your Bitcoin Taxes 101
Calculating your Bitcoin taxes every year neednt be a stressful or troublesome process. Learn the basics of capital gains tabulation, and youll be able to prepare your own Federal income tax return with confidence. Once you have a handle on the basics, youll also be better equipped to confer with your CPA or accountant at tax time.
Heres an overview of Federal income taxes as applied to your Bitcoin gains.
A Short-Term Capital Gain Example
- You bought $10,000 of BTCUSD on February 7, 2018
- BTCUSD price per unit: $8,000
- BTCUSD units acquired: 1.25
- Transaction fees: $150
Cost basis: $10,150
- You sold 1.25 units BTCUSD on February 17, 2018
- BTCUSD price per unit: $10,750
- Transaction fees: $202
Net proceeds: $13,236
Subtracting your cost basis of $10,150 from your net proceeds of $13,256 results in a short-term capital gain of $3,086 for you. Because you held your BTCUSD for less than one year, your gain is considered a short-term capital gain. Your capital gains tax rate, in this example, will be the same as your ordinary income tax rate.
A Long-Term Capital Gain Example
- You bought $12,000 of BTCUSD on October 11, 2016
- BTCUSD price per unit: $640
- BTCUSD units acquired: 18.75
- Transaction fees: $180
Cost basis: $12,180
- You sold 18.75 units BTCUSD on December 22, 2017
- BTCUSD price per unit: $12,500
- Transaction fees: $3,516
Net proceeds: $230,859
Subtracting your cost basis of $12,180 from your net proceeds of $230,859 results in a long-term capital gain of $218,679 for you.
Note that you always include your trade transaction costs. Add them to your cost basis and subtract them from your net proceeds. Because you held your BTCUSD for more than one year, your gain is considered a long-term capital gain. Your capital gains tax rate, in this example, will be less than your ordinary income tax rate.
Your long-term capital gains are taxed at one of three rates:
- 0% for individuals in the two lowest (10% and 15%) marginal tax brackets.
- 15% for the next four tax brackets (25%, 28%, 33%, and 35%)
- 29% in the highest (39.6% tax bracket)
How to Offset of Your Cryptocurrency Losses
The IRS permits you to offset long-term capital gains against your long-term capital losses, up to a maximum of $3,000 per year (if youre married and filing separately, the annual limit is $1,500). If y ...