In 2023, the IRS will pay a great deal of attention to crypto-derived income, as cryptocurrencies are no longer the hottest new investment asset.

Regrettably, crypto tax rules remain somewhat complex. The IRS makes it clear that cryptocurrency may be subject to either income taxes or capital gains taxes, depending on its usage.

Crypto-Related Income

First, you do not owe taxes on cryptocurrency if you are simply holding, as crypto enthusiasts would say. However, if you’ve earned any cryptocurrency-related income this year by staking, lending, or selling, you may owe taxes on the proceeds.

When you sell cryptocurrencies for a profit, you must pay capital gains taxes since the IRS views them as capital assets. This is precisely what occurs when selling conventional securities, such as stocks or mutual funds, for a profit.

Suppose you purchased $1,000 worth of Ethereum and then sold it for $1,600. You must include this $600 capital gain in your tax filings. The amount of taxes you owe depends on how long you held your coins.

The $600 profit would be taxed as a short-term capital gain if you held your ETH for one year or less. Short-term capital gains are taxed the same as ordinary income, with the tax rate determined by your adjusted gross income (AGI).

The highest federal income tax bracket rate is 37%. To be in the highest tax rate for single filers in 2023, you would need to earn $578,126 or more.

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Cryptocurrencies Can Be Taxed For A Reason

If you mine cryptocurrencies, receive them as a bonus, or receive it as payment for goods or services, it is taxable like regular income. At your marginal income tax rate, you must pay tax on the full amount of the cryptocurrency on the day you receive it. yield-earning goods, such as staking, are also regarded as taxable income.

Depending on how long you’ve had the cryptocurrency, you must pay either short-term or long-term capital gains taxes on the earnings if you spend or sell it for more than it was worth when you initially acquired it.

You can deduct a portion of your loss from your taxes if you sell an investment asset at a loss. You can claim a capital loss and use it to offset other income taxes if you sold cryptocurrency for less than you bought for it.

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