Crypto Payments – How are they Taxed in the United States?
You are here:
crypto payment processing

Crypto Payments – How are they Taxed in the United States?


The US government has struggled to keep up with the recent surge in crypto payment processing as more and more people start using crypto for everyday transactions. Unsurprisingly, this trend has not gone unnoticed by the IRS and tax collectors.


To add some clarity on how exactly crypto transactions are taxed in the United States, we have created a list of important facts about this phenomenon. Please note that this is not legal advice but rather a compilation of facts that can help you understand how the US government views cryptocurrency.


Here’s what you need to know about cryptocurrency taxes and how they work: what counts as taxable income, how long do I have until I owe tax on my cryptocurrency gains, and how do I calculate my capital gains? The article will go into more detail on these points and answer any last-minute questions about crypto taxes.


Why is cryptocurrency a trend?  


The popularity of cryptocurrency has been surging in the past year, with its value rising from a few hundred dollars per coin to almost $6,000. With so much new interest coming from all around the world, it’s being given a lot more thought and attention, which is great for those that are considering investing in this new technology.


The reason for this sudden surge in popularity is that cryptocurrencies such as Bitcoin allow people to transfer money instantly at near-zero cost using blockchain technology. This decentralized system also enables its users to make transactions without having any need for an intermediary (a bank or government) – unlike traditional currencies, which are controlled by central banks that can manipulate their money supply, often leading to runaway inflationary credit bubbles and hyperinflation.


Crypto Payment Processing

What are crypto payments?


Crypto payments are a revolutionary new type of payment. Crypto payments are digital transactions that send assets, such as cryptocurrencies, to parties on the other side of a distributed ledger. In contrast to fiat transactions, where intermediaries facilitate the transfer of value for a fee, crypto payments have no intermediary and rely solely on cryptographic security. This effectively eliminates chargebacks and enables secure payments without having to trust an entity with your money or sensitive data. Crypto Payment Processing are not only faster, more secure, and cheaper than traditional payments, but they’re also becoming the norm for online purchases.


The industry has been growing prices of all virtual currencies – like bitcoin and ether, which hit reaching all-time highs in the past weeks – something that hasn’t gone unnoticed by some European banks.


Some notable benefits of crypto payment processing are that it is secure since there is no bank involved to process a payment. It is faster, as there is no need to wait for a bank to approve a payment. And it is cost-efficient because the charges on cryptocurrencies are usually less than those on fiat currencies.


How are Crypto payments taxed in the US?


Crypto payments are a hot new way to purchase goods, services, and products online. And while it’s not for everyone due to the relatively high risk of hacking or theft, if you know how to keep yourself safe and aren’t afraid of potentially large tax bills, crypto payments might be the way to go!


First, let’s talk taxes. Cryptocurrencies like Bitcoin are categorized as property by the IRS. That means that you must include any profit from an investment in a cryptocurrency like Bitcoin as capital gains income on your tax return. In addition, any cryptocurrency you purchase receives an automatic deferral for long-term capital gains tax purposes.


Taxes on crypto payments are just like regular income taxes, but they apply specifically to digital currencies like Bitcoin in certain cases. These changes have been taking place ever since Bitcoin was created back in 2009, and this is why we’re still seeing them so many years later despite the highly volatile nature of cryptocurrencies themselves.


Crypto payments can be taxed as a capital gain, which means they are subject to a 25% rate. Cryptocurrency is treated as property rather than currency in the US. Sales of cryptocurrencies will be taxed at the standard rate for long-term gains or short-term gains.


crypto payment texed

When are Crypto payments taxed? 


One common question is, when is crypto payment taxed?


The money isn’t taxed until it is withdrawn from your exchange account and converted into USD or other fiat currency. If a miner mine 1 BTC this year and chooses not to cash it out to avoid taxes, they do not owe taxes on it up until they convert it.


Crypto payments are taxed when you sell or use your crypto in a transaction. This is because you initiate capital gains or losses if its market value has changed. Also, when you receive crypto as payment for business aims, it is taxed as business income.


Types of crypto taxes


There are three primary types of crypto taxes to think about: short-term capital gains, long-term capital gains, and income tax.


Short-term crypto taxes will happen when your crypto profits are less than $200 and last that amount or more but less than a year. Long-term capital gains will happen when your profits are lower than $200 and last longer than one year. Lastly, income tax usually happens when you purchase things with cryptocurrencies like clothing or a cup of coffee, or other digital goods.


The IRS is trying its hardest to make sure that there are some rules in place for people who want to hold onto their cryptocurrency gains while they’re waiting for a payday or would like to keep their earnings on the down low. The events that are taxed are:


1) Sale or exchange of cryptocurrency;

2) Mining income from mining cryptocurrency

3) Gifts of cryptocurrency.


Reporting of Crypto Payment taxes 


The IRS recently released a new set of guidelines surrounding cryptocurrency taxation and reporting. These new guidelines were made in response to the rapid rise of cryptocurrency usage and subsequent confusion as to how these digital assets should be taxed.

The Internal Revenue Service (IRS) does not specifically mention cryptocurrency on its website. However, it is widely known that the IRS considers Bitcoin as property and not currency. This means, for tax purposes, you are required to track every time you trade or spend your bitcoin. You have to keep records of your purchase or trade and the date of said transaction. At the end of the year, you will have to file your capital gains or losses form on Schedule D within your 1040 tax return to figure out what taxes you owe for trades made throughout the year.


Wrap Up


If you’re one of the lucky few who bought a bunch of bitcoins at rock bottom prices and watched them soar to the heavens, you might be eager to cash out some of that profit. But before doing so, be sure to understand how cryptocurrency taxes work! We hope this article has shown some light on the same.