U.S. Crypto Tax Guide 2022

Any U.S. citizen who dabbled in cryptocurrencies during the 2021 tax year is now required to file a tax return with the IRS. Taxpayers can file between the January 24 and April 18 deadlines, with penalties for late filings.

In the United States, cryptocurrencies, including NFTs, continue to be taxed as “property.” This was originally decided by the IRS in a 2014 notice, meaning that most taxable actions involving digital assets would incur capital gains taxes, similar to how stocks are taxed. However, cryptocurrencies earned from certain activities are considered income and are therefore subject to income tax.

Guidance around taxable matters has become murky over the past year, largely because of new activity related to decentralized finance (DeFi).

When do U.S. citizens have to pay taxes on cryptocurrencies?

Capital gains tax events involving cryptocurrencies include:

Sell cryptocurrencies for fiat currencies (USD, JPY, etc.).

Send cryptocurrency as a gift (any gift over $15,000 for the 2021 tax year).

Use cryptocurrencies to buy goods and services, even for small purchases like coffee.

Exchange one digital asset for another, this includes buying NFTs with cryptocurrencies.

It's worth noting that you're only taxed on any capital gains from these activities, not on the full amount of assets disposed of. This is calculated based on the difference between the price paid for the asset and the sale price.

The IRS has not made it clear whether minting tokens (including publicly minting NFTs or minting interest-bearing assets) would create a taxable event. It is unclear whether the use of liquidity provider (LP) tokens to withdraw liquidity deposits from DeFi liquidity pools is considered a cryptocurrency transaction. If you dealt with any of these assets or processes in the previous tax year, you should seek professional guidance.

Income tax events include:

Receive cryptocurrencies from airdrops.

Any cryptocurrency interest income from DeFi lending.

Cryptocurrency mining revenue from block rewards and transaction fees.

Cryptocurrencies obtained from liquidity pools and interest-bearing accounts.

Receive cryptocurrency as payment for work, including bug bounties.

Interestingly, the tax laws surrounding cryptocurrencies acquired through staking are still unclear. In most cases, many report it as mining income. However, there is an ongoing case against the IRS requiring that staking rewards be taxed only when they are sold, not when they are earned. The plaintiff's argument in this case is that newly created property, such as furniture or other manufactured goods, is generally taxed only at the point of sale. They argue that the same principle should apply to newly minted tokens obtained through staking.

Losses from trading can be used to offset your capital gains, and up to $3,000 can be deducted from your normal income tax depending on how long you hold the asset. Any additional losses can be carried forward to the next tax year. However, to be eligible for capital gains relief, you must show that all assets in a particular class have incurred losses.

How Much U.S. Crypto Tax Do You Pay?

Calculating how much cryptocurrency tax you owe in the U.S. is based on how long you held your assets before disposing of them, and which income tax bracket you fall into.

This is divided into two parts:

Short-term capital gains: Profits from crypto assets held for less than a year are taxed at the same rate as any income tax bracket you are in. Any losses can be used to offset income tax up to $3,000. Any further losses can be carried forward.