In the United States, cryptocurrency is taxed as property, not as currency.
This means each time you dispose of your crypto—whether by selling it, trading it, or using it to make a purchase—you must calculate the capital gain or loss based on your cost basis (what you paid for the crypto) and the fair market value at the time of the transaction.
Short-term capital gains (for assets held one year or less) are taxed at your ordinary income rate, while long-term gains (held more than one year) are taxed at lower capital gains rates. If you mine or stake cryptocurrency, the fair market value of the coins received must be reported as ordinary income in the year received.
Understanding the tax implications of each type of crypto activity—from trading to earning—can help you avoid unexpected tax bills. Keeping accurate records is crucial for calculating gains and losses and preparing accurate returns.
