Crypto Taxes (2022-2023) in the United States: What to Know

The White House invested heavily into the Internal Revenue Service (IRS) in 2022—shoveling about $45 billion into the department to amp up tax enforcement. Much of the focus is on cryptocurrency taxes. For crypto investors, this means it’s more important than ever to be on your game with crypto taxes.

Here’s your resource on which crypto transactions are taxable, which ones aren’t, tax rates on crypto, how you can save money on fees, and how the U.S. taxes lost or stolen crypto.

Key terms to know for crypto taxes

To help you understand how cryptocurrency works, let’s take a peek at a few key phrases related to crypto and taxes:

• Taxable events: Transactions or uses of virtual currency that result in realized gains or income
• Capital gains: Any money gained through transactions (including the sale or other transaction of a digital asset, resulting in a higher price than you paid for it)
• Cost basis: The fair market value of the cryptocurrency when you acquired it
• Form 8949: IRS form for reconciling amounts of capital gains and losses
• Form 1099-MISC: IRS form for reporting rewards/fees income from staking

Quick rundown before diving into the crypto tax guide

For the purposes of federal income tax calculation, you need to treat your cryptocurrency gains as you would a piece of property.

If you have bought, sold, used, or traded crypto, you should do some careful calculations to determine whether you owe any taxes on that cryptocurrency.

U.S. individuals must report gains and losses on cryptocurrency holdings, not just material holdings. The IRS provides IRS Notice 2014-22 to explain how virtual currency taxes work. Essentially, since crypto is treated as property, capital gains taxes apply.

One crucial first step in simplifying your crypto taxes is to keep meticulous records of all cryptocurrency transactions. This will help you know the cost basis and gains on your digital assets when tax time arrives. The right brokerage account, including Public.com, will help you with these records—but it’s good to stay on top of it yourself so you know what to expect. Public will also share tax documents relating to your crypto transactions at the start of tax season.

Which crypto transactions are taxable?

When you sit down to figure out your crypto taxes, you’ll want to have a grasp on what the IRS considers a “taxable event” regarding cryptocurrency. Here are a few activities with your virtual currency that would likely be taxable events:

• Selling cryptocurrency for cash (resulting in realized gains)
• Using mined or purchased cryptocurrency to pay for goods or services
• Converting cryptocurrency (using one virtual currency to pay for a different virtual currency)
• Receiving mined cryptocurrency
• Receiving virtual currency as payment (this counts as ordinary income)
• Receiving crypto rewards
• Swapping one cryptocurrency for another

The general rule of thumb is that if you realize any gains from a crypto transaction, you could owe taxes on it (as is true with physical property).

Which crypto transactions are not taxable?

If you simply have a crypto asset sitting in your investing account or cryptocurrency wallet, but don’t sell or use it in any way for the entire year, you haven’t realized any gains. This is a non-taxable event.

Some other non-taxable events include donating cryptocurrency to charity and transferring cryptocurrency between your own crypto wallets.

How are airdrops and forks taxed in the U.S.?

Some crypto investors may need to navigate what’s known as a hard fork. According to the IRS, a hard fork is when a cryptocurrency undergoes a major protocol change. If you don’t receive a new cryptocurrency, this does not create taxable income. But if a hard fork is followed by an airdrop and you receive a new cryptocurrency, that does count as taxable income.

Cryptocurrency tax rates in the U.S.

Below are the cryptocurrency tax brackets for 2022 and 2023, including long-term capital gains tax (held for one year or more) and short-term capital gains tax (held for less than one year).

A couple of notes:

• The income listed refers to your ordinary income, aka earned income.
• Short-term capital gains tax rates are the same as ordinary income tax rates.

Cryptocurrency tax rates for tax year 2022

Long-term capital gains

Short-term capital gains

Cryptocurrency tax rates for tax year 2023

Long-term capital gains

Short-term capital gains

You can use some crypto losses to offset gains

Due to the prevalence of crypto rug pull scams and crypto volatility, it’s important to know how to handle losses. As with other property, losses on your crypto can be used to offset gains, up to $3,000 per year. Plus, you can carry over additional losses to future years. Learn more about crypto tax-loss harvesting, or using capital losses to offset gains, from the IRS and a tax professional.

Tax implications for lost or stolen crypto

When you buy crypto, you might not be thinking about the possibility of a hacker stealing it. However, this does happen sometimes—and while there are ways to protect your assets, you should know how it affects your taxes.

According to the IRS, there are two ways to lose crypto: Casualty loss (such as losing access to a crypto wallet) and theft loss (like a hacker stealing your assets).

Neither of these are tax-deductible in the eyes of the U.S. government. As a result, you should simply disregard any lost or stolen crypto from your tax calculations.

How to file crypto taxes

Once you’ve calculated any taxes you may owe on virtual currency, it’s time to file them along with your federal income tax return. Several crypto-focused tax software programs exist to help tax filers make sense of their cryptocurrency tax requirements. CoinTracker even integrates with TurboTax to simplify that process, and other crypto tax software may integrate with other regular tax software.

If you trade crypto on Public.com, you will receive an annual crypto tax statement from Public’s crypto trading partner Apex Crypto. When filing your taxes, you will use this crypto tax statement to complete IRS form 8949. Learn how to access your tax forms on the Public app or website here.

Once you’ve used Form 8949 to reconcile capital gains and losses for the year, simply report them on your IRS Form 1040 using Schedule D.

Bummed about taxes? How taxpayers can save on crypto fees

If you’re paying more than you hoped on crypto taxes, consider reducing your transaction fees to account for the cost. Here are a few ways to save on crypto fees:

• Trade less frequently. This doesn’t mean you have to invest less money, but you pay fees with each transaction, so it may benefit you to consolidate your trades. Public’s Recurring Investing feature can help you time your investments on a weekly, biweekly, or monthly basis.
• Shop around for different crypto exchanges, which typically charge different fees.
• Be aware of the fees associated with the blockchain you’re trading on. Certain blockchains have higher fees than others.

Want to make sure you’re reporting your crypto taxes correctly? Make sure you understand crypto wash sale rule and how it applies to your investments

Bottom line

Many of the same tax principles apply with cryptocurrency as other property types. However, there are lots of nuances unique to crypto as well. When it comes to tax reporting for crypto gains, the more you know, the better off you’ll be.

With Public, the social investing app that prioritizes community-oriented engagement and education, we know just how valuable it is to learn from others.