What are the tax implications of investing in cryptocurrency?

What are the tax implications of investing in cryptocurrency?

When you invest in cryptocurrency, any gains you make are typically subject to capital gains tax. This means if you sell your crypto for more than you paid, you'll owe taxes on the profit.

Are there different tax rates for short-term and long-term gains?

Yes, short-term capital gains (for assets held less than a year) are taxed at your ordinary income tax rate, while long-term gains (for assets held over a year) are usually taxed at a lower rate.

What about losses? Can I deduct those?

Yes, you can deduct capital losses from your taxable income, which can offset gains. If your losses exceed your gains, you can use up to $3,000 of the loss to reduce your taxable income.

Do I need to report every transaction?

Yes, the IRS requires you to report all transactions, including trades, sales, and even using crypto for purchases. Keeping detailed records is essential.