In the United States, crypto can be taxed as ordinary income or capital gains, depending on which taxable event produced the earnings.
Mining, staking, lending, or payments for goods or services are considered ordinary income. They receive the tax rate that corresponds to an investor's gross income. These rates range from 0-45%.
Crypto trades, sales, or swaps are taxed as capital gains, Your exact rate depends on the length of time the asset was held and your overall income, but ranges between 0 and 37%. These trades are reported on Form 8949.
Read on for our complete breakdown of crypto tax rates for U.S. traders.
What is the tax rate on crypto?
All earnings from crypto mining, staking, or payments are taxed at your ordinary income rate, which varies depending on which income bracket you fall into.
The tax rate for capital gains, however, varies based on the length of time a trader held the asset. The U.S. encourages long-term trades by taxing them at a lower rate.
Short-term capital gains: If you hold a digital asset for a year or less, your proceeds will be considered short-term capital gains. They will be taxed at your ordinary income rate, which is determined by your overall income.
Long-term capital gains: If you hold cryptocurrency for more than a year, your proceeds will be taxed at the advantageous long-term gains rate. These rates also depend on your overall income, but are generally lower than the short-term gains rates.
According to the IRS’s cryptocurrency tax FAQs, the holding period begins on the day after you receive an asset.The asset's cost basis will be its purchase price, plus any applicable fees.
U.S. income tax brackets(2022)
Note that these are the same as your short-term gain tax rates.
| Tax rate | Single filer | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 10% | Up to $10,275 | Up to $20,550 | Up to $10,275 | Up to $14,650 |
| 12% | $10,276 to $41,775 | $20,551 to $83,550 | $10,276 to $41,775 | $14,651 to $55,900 |
| 22% | $41,776 to $89,075 | $83,551 to $178,150 | $41,776 to $89,075 | $55,901 to $89,050 |
| 24% | $89,076 to $170,050 | $178,151 to $340,100 | $89,076 to $170,050 | $89,051 to $170,050 |
| 32% | $170,051 to $215,950 | $340,101 to $431,900 | $170,051 to $215,950 | $170,051 to $215,950 |
| 35% | $215,951 to $539,900 | $431,901 to $647,850 | $215,951 to $323,925 | $215,951 to $539,900 |
| 37% | more than $539,900 | more than $647,850 | more than $323,925 | more than $539,900 |
U.S. long-term capital gains tax rates (2022)
| Tax rate | Single filer | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 0% | up to $41,675 | Up to $83,350 | Up to $41,675 | Up to $55,800 |
| 15% | $41,675 to $459,750 | $83,350 to $517,200 | $41,675 to $258,600 | $55,800 to $488,500 |
| 20% | more than $459,750 | Over $517,200 | Over $258,600 | Over $488,500 |
How can I reduce my crypto capital gains taxes?
If you want to avoid higher taxes, you should prioritize making long-term crypto trades whenever possible.
Specific identification accounting is allowed by the IRS for virtual currency. This inventory valuation method lets you track individual tax lots, so you’re able to strategically match up sales and acquisitions. If you want to avoid taxes, you can favor making long-term trades so you can get the lower tax rate.
If you're using crypto tax software, you can choose which method of specific ID accounting you want to use: FIFO, LIFO, HIFO, or Minimization. This is particularly useful because digital currencies are divisible into decimal amounts, unlike stocks.
Be aware, however: although long-term trades typically lower a crypto investor’s taxes, sometimes the state and federal tax rates for an individual’s income bracket actually make short-term gains advantageous. TokenTax’s Minimization algorithm detects when this is the case and makes the appropriate adjustments.
For more info on crypto tax basics, visit our Crypto Tax Guide.
