My 2 Sats: Clearing up your crypto taxes in 2022

My 2 Sats: Clearing up your crypto taxes in 2022

My 2 Sats: Clearing up your crypto taxes in 2022

Just to be clear, none of what we mention in this article is financial advice. If you have any questions about your taxes you should talk to a professional.

That being said, the following is a bit of information that we think can help you make better sense out of how much you might owe. Also, at the end of this article we’ll link to two resources that can make paying your taxes a breeze.

How to clear up your tax obligations

April 18th is the deadline to pay your taxes in America. That’s just a week away but many people aren’t ready for it. CoinTracker recently released the results of a survey showing that most investors don’t understand how much they owe. According to the survey, “Given a list of possible cryptocurrency situations that require paying income tax, just 3 percent got all answers correct, leaving 97 percent with at least one wrong answer.”

Hopefully this article can clear up a few of the most common misconceptions. For starters, the United States government treats crypto as property. Whenever you sell some crypto for a profit, or trade one coin for another, that’s a taxable event. If you’ve been holding your coins for more than a year you’ll need to pay a long-term capital gains tax. That can range from 0% to 20%, depending on your annual income. If you sell the coins before you’ve had them a year, you'll need to report a short-term capital gains tax.

All staking and mining profits are also treated as taxable income. In a sane world you would only pay taxes once you sell the coins you’ve earned. After all, a farmer pays taxes when they sell their crops, not when they take the potatoes out of the ground.

However, you probably won’t be surprised to learn that we’re not living in a sane world. As it stands now, the IRS expects stakers to pay taxes even if they don’t sell the coins they’ve earned. That’s the situation, even though just a few months ago the IRS settled a case with Joshua and Jessica Jarret. The Jarrets argued in court that they shouldn’t have had to pay taxes on unrealized staking profits, and the IRS was forced to agree.

Despite the legal victory the tax laws are still the same, and the Jarret’s case hasn’t yet set a new precedent. We’re hopeful that the IRS changes the rules soon, however, for this year stakers should be aware that they’re on the hook for taxes even if they don’t sell.

Last but not least, NFTs. Even though nobody at the tax department can probably explain what an NFT is, that doesn’t mean they can’t be taxed. The IRS treats NFTs as collectibles, a category with a tax rate that can go as high as 28%. These high rates mean that successful NFT investors could find themselves with unexpectedly large tax bills at the end of the year.

If all of this tax talk sounds daunting, don’t worry. There are a couple of great tools that can make paying your crypto taxes 10x easier. Crypto Trader and Coin Tracker are two fantastic programs built from the ground up for digital asset traders and investors. One pro tip, if you sign up for the Crypto Trader email list they frequently send out 30% discount coupons.

The Crypto Trader dashboard

Crypto Trader and Coin Tracker allow you to import all of your purchases and sales from dozens of exchanges, everything from Uniswap to Coinbase. The programs automatically calculate gains and losses, and create reports that you can give directly to the IRS. Paying your taxes will never be fun, but with a bit of computerized help at least it doesn’t have to be miserable.

This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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