2020 – 2021 IRS Tax Rates for Cryptocurrencies

Cryptocurrencies are taxed based on capital gains or income. Capital gain apply for cryptocurrencies like in any other property and it depends on the holding period. For a holding period equal to or under a year, this tax rate and calculation are the same as ordinary income, and the tax rates are summarized in the table below. Knowing your tokens holding period because extremely relevant for crypto traders, especially for those involved in high frequency trading as it can have a very big impact on their cryptocurrency taxes. As you might already be aware, crypto to crypto transactions generate a taxable event. Keeping track of your tokens cost basis and date of buys/sells become extremely relevant for any crypto trader, but specially for those professional crypto traders.

Short Term Holdings in Cryptocurrencies

So you are staking, margin trading and continuously swapping and making over 10,000 transactions a year. You go to bed late thinking of the next move and you have over 30 alerts set up on your crypto portfolio tracker. You are generating serious gains or trying to pick up where you left off from last big pump. If this is you, make sure you know how capital gains apply to you. Basically Short Term Holdings apply to you exactly the same as your Income Tax. Depending on your tax bracket, it can go all the way to 37%. Here is a table to give you further perspective on what you might be paying based on your crypto portfolio value:

Table 1. Short Term Holdings Tax Brackets (<1 year)

Tax rateSingle filersMarried filing jointly*Married filing separatelyHead of household
10%$0 – $9,950$0 – $19,900$0 – $9,950$0 – $14,200
12%$9,950 – $40,525$19,900 – $81,050$9,950 – $40,525$14,200 – $54,200
22%$40,525 – $86,375$81,050 – $172,750$40,525 – $86,375$54,200 – $86,350
24%$86,375 – $164,925$172,750 – $329,850$86,375 – $164,925$86,350 – $164,900
32%$164,925 – $209,425$329,850 – $418,850$164,925 – $209,425$164,900 – $209,400
35%$209,425 – $523,600$418,850 – $628,300$209,425 – $314,150$209,400 – $523,600
37%$523,600 and above$628,300 and above$314,150 and above$523,600 and above

Long Term Holdings in Cryptocurrencies

If the cryptocurrency is held for more than one year, then it is termed as long-term capital gains tax, and the applicable tax rate follows:

Table 2. Long Terms Holdings Tax Brackets (>1 year)

Tax rateSingle filersMarried filing jointly*Married filing separatelyHead of household
0%$0 – $40,400$0 – $80,800$0 – $40,400$0 – $54,100
15%$40,400 – $445,850$80,800 – $501,600$40,400 – $250,800$54,100- $473,750
20%$445,850 and above$501,600 and above$250,800 and above$473,750 and above

Now, the key different on long term holdings and short term holdings can be summarized by two things:

  1. the percentage payable based on the amount
  2. the time held of a specific cryptocurrency in your portfolio without any change

Leveraging on long term holdings is a great strategy for tax-loss harvesting. The longer you hold a cryptocurrency, the lower the tax rate. During a bear market, a lot of people uses long term holdings as well as multi-depot platforms to be able to distribute their tokens accordingly and generate bigger losses by leveraging on the fact that cryptocurrencies are considered currencies. 1 bitcoin in 2020 vs 1 bitcoin in 2017 is still 1 bitcoin. Moving your tokens around allows you to generate bigger losses, hence saving you thousands in taxes.

Cryptocurrencies Holding Period Conclusion

Whether trading for a long time and you’re saavy in every blockchain shape or form or just got some bitcoin from your brilliant cousin years ago and you decided to sell your crypto, know that you’ll have to pay taxes on it. Using a tax software like ACCOINTING.com will let you not only keept track of your portfolio value and generate a tax report, but under you paid package, you will have access to Holding Period feature that allows you to know when selling a token in the future will make you save the most amount of money (or report the biggest amount of losses). Remember to make sure to validate your crypto taxes with you accountant or go to https://www.accointing.com/taxes and we will be able to recommend a crypto tax expert.

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