US Cryptocurrency Taxes: Tax Rates

Legal Status of Cryptocurrency

There is currently no specific federal law in the United Statesdedicated directly to cryptocurrency.Separate regulatory legal acts exist at the state level, however, legal regulation from state to state is fragmented - there is no single federal policy yet.

However, the authorized bodies have created verydetailed instructions and explanations. In addition, in general, federal legislation does not impede the development of the crypto industry and is not going to ban cryptocurrency.

Yes, according to the IRSUnited States, Internal Revenue Service (IRS), virtual currency is a digital representation of value other than the United States dollar or foreign currency (“fiat currency”) that functions as a unit of account, store of value, and medium of exchange. Cryptocurrency refers to virtual currency.

According to Section 4 of IRS Notice 2014-21,2014-16 I.R.B. 938, virtual currency (including cryptocurrency) for tax purposes is recognized as property (i.e. property). That is, back in 2014, legal regulation of cryptocurrency for tax purposes appeared. Today, according to clarifications from the IRS, almost any cryptocurrency transactions are allowed in the States. The only exceptions are those transactions that directly violate laws (for example, fraud, etc.).

Permitted cryptocurrency transactions include:

• receiving cryptocurrency for the performance of works/services,
• payment by cryptocurrency for works/services,
• exchange of cryptocurrency for other property (including real estate),
• exchange of property (including real estate) for cryptocurrency,
• making a donation (charitable contribution) in cryptocurrency.

These operations are allowed for both individuals and legal entities (companies, charitable organizations, etc.).

It is also worth noting that if the virtual currencyhas the characteristics of a security, then it falls under the current legislation on securities. The Securities and Exchange Commission (SEC) requires the issuer of such virtual currency to properly register it and comply with applicable securities and stock market laws.

Thus, despite the absenceof the federal law on cryptocurrency, the clarifications of the authorized bodies are quite enough to assess the turnover of cryptocurrency in the country. So, in the USA, all transactions with cryptocurrency are allowed, as with ordinary property, which it is recognized as.

Taxation of transactions with cryptocurrency

Income tax

Note: This study only considers federal taxation. Additional state taxes are possible.

As stated above, virtual currency (including cryptocurrency) is considered property for tax purposes (Section 4 of IRS Notice 2014-21, 2014-16 I.R.B. 938).

And all profitable property transactions are subject to income tax. Thus, taxable transactions with virtual currency include the following transactions:

• receiving or transferring virtual currency for free (without providing any reward), including through an airdrop or hard fork;
• exchange of virtual currency for goods or services;
• sale of virtual currency;
• exchange of virtual currency for other property, including for other virtual currency;
• realization of other financial interests in virtual currency (page 17 of the IRS Instructions for Completing Return 1040-2020).

The income tax rate depends ontaxable amount and position of the taxpayer (married persons filing joint returns, unmarried person, head of family, etc.) (Article 1, Part 1, Subsection A, Chapter 1 of Tax Code 26):

1) persons who are married and submit joint declarations:

If taxable income is:	The tax is:
No more than $36,900	15% of taxable income.
Over $36,900 but not over $89,150	$5,535 plus 28% on excess amounts over $36,900.
Over $89,150 but not over $140,000	$20,165 plus 31% of excess over 89,150
Over $140,000 but not over $250,000	$35,928.50 plus 36% of excess over $140,000
Over $250,000	$75,528.50 plus 39.6% of excess over $250,000

2) Head of family:

If taxable income is:	The tax is:
No more than $29,600	15% of taxable income.
Over $29,600 but not over $76,400	$4,440 plus 28% on excess over $29,600
More than $76,400 but not more than $127,500	$17,544 plus 31% of the excess $76,400
More than $127,500 but not more than $250,000	$33,385 plus 36% of the excess $127,500
Over $250,000	$77,485 plus 39.6% of excess over $250,000.

3) An unmarried person:

If taxable income is:	The tax is:
No more than $22,100	15% of taxable income.
More than $22,100 but not more than $53,500	$3,315 plus 28% on excess over $22,100
More than $53,500 but not more than $115,000	$12,107 plus 31% of excess over $53,500
More than $115,000 but not more than $250,000	$31,172 plus 36% of excess over $115,000
Over $250,000	$79,772 plus 39.6% of excess over $250,000

4) Married persons filing separate declarations:

If taxable income is:	The tax is:
No more than $18,450	15% of taxable income.
Over $18,450 but not over $44,575	$2,767.50 plus 28% excess over $18,450
More than $44,575 but not more than $70,000	$10,082.50 plus 31% of excess over $44,575
More than $70,000 but not more than $125,000	$17,964.25 plus 36% of excess over $70,000
Over 125,000	$37,764.25 plus 39.6% of excess over $125,000

Capital gains tax

In addition to income tax on transactions withCryptocurrency in the United States also provides for capital gains tax. It is applied in the event of an increase in the value of cryptocurrency when buying and holding it (subsection P of Chapter 1 of the US Tax Code 26).

That is, if a person sold virtual currency that was held as a capital asset, then this is a taxable event (page 17 of IRS Return Instructions 1040-2020).

When paying tax on capital gains, you mustdetermine the shelf life of the cryptocurrency. If the cryptocurrency was stored for less than 1 year, then it is a short-term capital gain, if more than one year, it is a long-term capital gain. The duration of the cryptocurrency being at disposal is calculated from the date on the next day after the acquisition of the cryptocurrency, until the date (inclusive) of its sale.

Tax rate on long-term income from gainscapital for most individuals does not exceed 15%. If taxable income does not exceed $78,750, then it is taxed at a zero rate. The 15% capital gains tax rate applies if your taxable income is $78,750 or more, but less than $434,550 for singles; $488,850 for spouses filing jointly or for qualifying surviving spouses; $461,700 for the primary earner or $244,425 for spouses filing separately.

Short-term capital gains are subject to progressive taxation rates at which ordinary income is taxed.

Where is it more profitable to buy cryptocurrency? TOP-5 exchanges

For a safe and convenient purchase of cryptocurrencies with a minimum commission, we have prepared a rating of the most reliable and popular cryptocurrency exchanges that support deposits and withdrawals of funds inrubles, hryvnias, dollars and euros.

The reliability of the site is primarily determinedtrading volume and number of users. By all key metrics, the largest cryptocurrency exchange in the world is Binance. Binance is also the most popular crypto exchange in Russia and the CIS, since it has the largest cash turnover and supports transfers in rubles from bank cardsVisa / MasterCardand payment systemsQIWI, Advcash, Payeer.

Especially for beginners, we have prepared a detailed guide: How to buy bitcoin on a crypto exchange for rubles?

Rating of cryptocurrency exchanges:

#	Exchange:	Website:	Rating:
1	Binance (Editor's Choice)	https://binance.com	9.7
2	Huobi	https://huobi.com	7.4
3	Exmo	https://exmo.me	6.9
4	OKEx	https://okex.com	6.5
5	Bybit	https://bybit.com	6.3

The criteria by which the rating is set in our rating of crypto-exchanges:

• Work reliability— stability of access to all functions of the platform, including uninterrupted trading, deposits and withdrawals of funds, as well as the duration of the market and daily trading volume.
• Commissions– the amount of commission for trading operations within the platform and withdrawal of assets.
• Additional features and services— futures, options, staking, NFT marketplace.
• Feedback and support– we analyze user reviews and the quality of technical support.
• Convenience of the interface– we evaluate the functionality and intuitiveness of the interface, possible errors and failures when working with the exchange.
• final grade– the average number of points for all indicators determines the place in the ranking.

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