What is the crypto tax base?
Taxable crypto capital gains
The difference between capital gains and income
Capital gains are not the same thing as income. Income is what you make from your job or by owning an asset that generates regular income, like interest or rent. Capital gains are the profits you make when selling an asset for more than what you paid for it. They're often taxed differently than income to encourage people to invest in assets rather than spend all their money on things that depreciate quickly — like cars and TVs — so that they can build wealth over time. The level at which capital gains are taxed varies depending on how long it took the investor to sell their assets: short-term capital gains (anything under one year) are taxed at a higher rate than long-term capital gains (over one year) to encourage investors to make longer-term investments.
How much tax will I have to pay from crypto gains?
Tax rates depend on your income and filing status. For example, if you're single and make less than $9,950 in taxable income, then you'll only pay 10% on any gains from cryptocurrencies (and other investments). If you're married and file a joint return with your spouse, then the same rules apply—but with a few adjustments. You'll be taxed at your marginal rate or 0%, 15%, 22%, 24%, 32%, 35%, or 37%.
Taxes are calculated on your net income (your gross earnings minus things like deductible expenses). Net investment income includes interest, dividends, capital gains on assets held for more than one year (long-term capital gains), short-term capital gains from assets held less than one year (short-term capital gains), as well as royalties received from licensing intellectual property rights such as patents or copyrights.
What if I trade a lot and work in cryptocurrency full-time
If you work in cryptocurrency full time, it's important to keep detailed records of your earnings and expenses. This will help you track your profits and reduce the chances of an audit. Or you can use Ledgible’s Crytpo Tax and Accounting software to streamline your tax workflow and automatically calculate gain/loss, and properly report crypto transactions. Ledgible provides the automation of crypto tax activity so that you don’t have to worry about it.
If you are a cryptocurrency trader or investor and have made some profits, it’s important to keep good records of your earnings or use crypto tax software. By having a credible record of your crypto transactions, you’re bound to have a straightforward process of accounting for your crypto taxes. This will also help you avoid paying too much tax on your capital gains when it comes time to file your taxes.