Simplifying Income Reporting for Cryptocurrency Earners

Simplifying Income Reporting for Cryptocurrency Earners in 2023 | The Enterprise World

Is income reporting for cryptocurrency earners any different from reporting regular income to the IRS? The answer is yes.

The IRS treats cryptocurrency as similar to property or stocks, and there are specific tax forms used to report incurred profits or net losses in crypto. Keep reading if you want to learn more about how to report income earned in cryptocurrency form.

How is Cryptocurrency Taxed in the US?

Simplifying Income Reporting for Cryptocurrency Earners in 2023 | The Enterprise World

Cryptocurrencies such as Ethereum and Bitcoin are taxed whenever they are disposed via any of the following methods:

  • Buying
  • Trading
  • Selling
  • Staking
  • Mining

Disposing cryptocurrency is also done by receiving airdropped tokens or interest in cryptocurrency. On the other hand, you can claim a tax deduction if you incur losses while selling or trading crypto.

How Much Tax is Paid on Cryptocurrency?

The tables below summarize the amount of tax paid on long-term and short-term cryptocurrency gains.

Long-term cryptocurrency tax rates:

Tax RateSingleMarried Filing JointlyHead of Household
0%$0 to $44,625$0 to $89,250$0 to $59,750
15%$44,625 to $492,300$89,251 to $553,850$59,751 to $523,050
20%$492,300 or higher$553,850 or higher$523,050 or higher

Short-term cryptocurrency tax rates (taxed as regular income tax):

Tax RateSingleMarried Filing JointlyHead of Household
10%$0 to $11,000$0 to $22,000$0 to $15,700
12%$11,001 to $44,725$22,001 to $89,450$15,701 to $59,850
22%$44,726 to $95,375$89,451 to $190,750$59,851 to $95,350
24%$95,376 to $182,100$190,751 to $364,200$95,351 to $182,100
32%$182,101 to $231,250$364,201 to $462,500$182,101 to $231,250
35%$231,251 to $578,125$462,501 to $693,750$231,251 to $578,100
37%$578,125 or higher$693,750 or higher$578,100 or higher

Tax brackets help determine the amount of tax imposed on crypto gains.

How to do income reporting for cryptocurrency earners?

Simplifying Income Reporting for Cryptocurrency Earners in 2023 | The Enterprise World

The following are the steps in income reporting for cryptocurrency earners:

Step #1. Determine Your Losses and Gains in Crypto

You must incorporate the cost basis and gross proceeds in determining your capital losses or gains. The cost basis is the original acquisition price of your cryptocurrency, while the gross proceeds are the amount or profit made from disposing your digital asset.

Subtract your crypto’s cost basis from the gross proceeds to yield your capital gain or loss.

Step #2. Fill out Form 8949 and Schedule D

Report the crypto gains or losses yielded from Step 1 on IRS Form 8949.

Use Part I to report short-term crypto disposals and Part II to report long-term gains or losses. You may file for a tax offset of up to $3,000 when reporting losses on your cryptocurrency.

Include all yielded gains or losses on your Form 8949 on Schedule D to ensure all your losses and gains across all other qualified opportunity funds are duly reported to the IRS.

Step #3. Report Crypto Income on Schedule 1 or Schedule C.

Income reporting for cryptocurrency earners will depend on how a particular digital asset was acquired.

Crypto earned or acquired through crypto earnings, airdrops, or forks is reported as other income on Schedule 1.

Meanwhile, Schedule C is for reporting cryptocurrency income earned through business dealings.

Step#4. Use an Online Form Generator

Simplifying Income Reporting for Cryptocurrency Earners in 2023 | The Enterprise World

Filling out tax forms can be tedious, especially when you have multiple crypto incomes to report. Online form generators for W-2 forms, 1099 MISC, and other tax forms take a few minutes to generate.

Moreover, reliable form generators come with a calculator to yield accurate values when you report your income gains and file your losses.

Key Takeaways

  • Buying, selling, trading, mining, and staking crypto all require income reporting for cryptocurrency earners.
  • Short-term crypto gains are taxed at a maximum of 37%, while long-term crypto gains are taxed from as low as 0% to as high as 20%.

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