According to CNBC, about one in five Americans owned cryptocurrency in 2022, and tens of millions of them will have to kick up to the IRS when they pay taxes this year. Crypto, NFTs and other digital assets can be complicated investments, but calculating and paying taxes on them doesn't have to be.
Read More: The IRS Has Refunded $15.7B as of Feb. 3 — Here's How Much the Average Taxpayer Is Getting Back
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If you owned blockchain-based assets in 2022, there's a good chance you'll have to report it. Here's what you need to know.
Do You Owe Taxes for Crypto Transactions? That DependsThe IRS treats cryptocurrency the same way it treats stocks and bonds — as property, or if you're feeling fancy, capital assets.
The standard tax rules apply.
If you profit from your crypto investment, you'll pay capital gains taxes. The rate varies depending on whether you held your assets for more or less than one year. With a handful of rare exceptions, long-term capital gains are taxed at a more favorable rate of 0%, 15% or 20%, depending on your income.
On the other hand, short-term capital gains — those realized from investments held for less than one year — are taxed at the same rate as regular income, which means you'll pay between 10%-37%.
On the flip side of the digital token, you can offset those taxes with capital losses if you sold your crypto for less than you what you paid for it.
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You'll pay capital gains taxes on crypto transactions in the following situation.
Now that you know about the most common crypto transactions that are treated as taxable events, it's important to know that some crypto transactions aren't subject to taxation at all.
If you use money to buy crypto and hold it, it's a non-taxable event because any gains or losses are unrealized. That all changes when you sell. Donating crypto is a non-taxable event, as is receiving crypto as a gift or giving it as a gift, up to $16,000. You also won't be taxed for transferring crypto to yourself from one wallet or account to another.
In Some Cases, Crypto Is Taxed as IncomeWhen cryptocurrency transactions are treated as income, they're taxed at the same rate as any other income you earn based on your tax bracket and filing status. Here are a few common situations where crypto is taxed as income:
The IRS now treats NFTs as property just like cryptocurrency. Buying and holding them isn't a taxable event because any gains or losses are unrealized. But if you sell, trade or transfer them for a profit, you'll pay capital gains taxes at the standard rates — but here, too, capital losses can offset your liability.
Previously, there was speculation that the IRS would treat NFTs as collectibles like art or trading cards, which would have complicated their taxation. But in 2022, the agency issued guidance clarifying the matter.
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This article originally appeared on GOBankingRates.com: If You Trade Crypto or NFTs, Here's What You Need To Know About Tax Filing This Year