How is Crypto Taxed in the US? Understanding the Taxation of Digital Assets in the US

nailsauthor2023/11/27 10:16:08

Cryptocurrency has become increasingly popular in recent years, with more and more people using it as a means of payment and investment. As the usage of crypto continues to grow, it is essential to understand how it is taxed in the United States. This article will provide an overview of the taxation of cryptocurrency in the US, focusing on the different types of crypto assets, how they are taxed, and the potential tax liabilities for crypto holders.

Types of Crypto Assets

There are three main types of cryptocurrency in the US:

1. Security Token: These are considered securities under US law and are subject to the same taxation rules as traditional securities.

2. Utility Token: These are considered property under US law and are taxed as such.

3. Crypto-To-Crypto Trade: This involves the exchange of one type of cryptocurrency for another and is not subject to tax in the US.

Taxation of Crypto Assets

1. Security Token: As securities, they are subject to capital gains tax when they are sold or exchanged. Gains from the sale of security tokens are generally taxed at either 0% (if held for less than a year), 15% (if held for between one and two years), or 20% (if held for more than two years).

2. Utility Token: These are taxed as property and are subject to regular income tax on any profits made from their use or sale.

3. Crypto-To-Crypto Trade: These are not subject to tax in the US, as they do not involve the exchange of fiat currency.

Tax Liabilities for Crypto Holders

1. Income Tax: All crypto profits, whether from security tokens or utility tokens, are subject to income tax. This includes profits made through mining, trading, or holding crypto assets.

2. Fractional Income: If you receive a fractional income from your crypto assets, you must report this as ordinary income on your tax return.

3. Capital Gains Tax: Any profits made from the sale or exchange of crypto assets are subject to capital gains tax, as discussed above.

4. Reporting Requirements: All crypto transactions must be reported on your tax return, regardless of the amount. This includes purchases, sales, and mined coins.

5. Record-Keeping Requirements: Crypto holders are required to keep records of all transactions for up to six years, as per IRS guidelines.

Understanding the taxation of cryptocurrency in the US is crucial for anyone involved in the crypto market. By understanding the different types of crypto assets and their taxation rules, crypto holders can make informed decisions about their investments and ensure they are complying with US tax laws. As the crypto market continues to grow and evolve, it is essential to stay up-to-date with the latest tax regulations to avoid potential penalties and liabilities.