How much are you taxed on earnings from Cryptocurrency?

[Brenden]

I heard that if you make money off of crypto, you have to pay taxes on the profits you do make. Which means that any investments you make, is taxable when you cash out. Does anyone know the amount of taxes that are taken out or required to pay?

[James]

Yes but this is true of any capital gain. It will depend on how long you held onto the asset. You have a couple kinds of capital gains. 

Short term capital gains come from selling an asset you have owned for less then a year. Short term gains depend on the tax bracket you are in. So the tax is going to be 10%-37% depending on where you fall. 

Long term capital gains come from selling an asset you have owned for more then a year. The amount of tax depends on how much of a gain you made. The tax rates for long term capital gains are 0-20%. It all depends on what kind of gain you made and what your filing status is with the IRS. 

You will be required to keep track of your trades and report correctly. If you are on a platform that already reports to the IRS (any of the big players) if you are trading a lot there is some software that is able to help. 

I used to do coin arbitrage and was executing 100s of trades every single day. I had to stop because the taxes were just to complicated and I was not making enough money to make it worth continuing anyways. 

[Ella]

Isn't this taxation of crypto relatively new? Like didn't it only start a few years ago? I honestly know nothing about this and had no idea you had to actually include this in your taxes. I wonder how many people actually do this. LOL!

[James]

17 hours ago, Ella said:

Isn't this taxation of crypto relatively new? Like didn't it only start a few years ago? I honestly know nothing about this and had no idea you had to actually include this in your taxes. I wonder how many people actually do this. LOL!

Well... You are always supposed to report income and gains to the IRS that has been around forever. People used to think crypto was not being watched though. Then there were a few problems with exchanges and money laundering. So the government stepped in with know your customer laws which then made the exchanges collect data on the people moving the money around. Once that happened yes now you had to report because the exchanges were reporting and you would never want to raise any flags. 

People used to think of it more like cash. How often do you report cash :P. If you ever want to be really nice to your small local businesses pay them in cash.