Bitcoin Tax Calculator

At a glance:

• The IRS treats cryptocurrency as property for tax purposes.
• Holding cryptocurrencies for less than a year may result in short-term capital gains tax, while holding for over a year may incur long-term capital gains tax.
• Your tax filing status and taxable income will determine your tax bracket and the tax rate on crypto profits.

How is Bitcoin taxed?

If you are a U.S. resident who invested in Bitcoin or other cryptocurrencies in 2023, you might receive a tax document from the trading platform or cryptocurrency exchange you use and may need to pay taxes.

While there is currently very little guidance on the taxation of cryptocurrency such as bitcoin, one thing is clearly defined. The Internal Revenue Service (IRS) views cryptocurrency as property for tax purposes. That means you’ll likely receive a tax document because you either experienced a capital gain on that virtual investment in 2023 or received cryptocurrency as compensation, which the IRS considers ordinary income.

For practical purposes, the IRS has issued guidance defining cryptocurrency such as Bitcoin and Ethereum as virtual currencies. This guidance is subject to interpretation, but for most people, the main things to consider from a tax perspective are:

1. How long have you held your Bitcoin or other cryptocurrencies from purchase to sale? If held for less than a year, any profit may be liable for short-term capital gains tax. If held for longer than a year, any profit may be liable for long-term capital gains tax.
2. What is your tax filing status and taxable income? This will determine your tax bracket and the tax rate on any Bitcoin profits.
3. What is your state tax rate? This will determine how much you may owe in state taxes.

Bitcoin Tax Calculator instructions

Part 1: Enter your personal details

Step 1: Select the tax year you would like to calculate your estimated taxes.
Step 2: Select your tax filing status.
Step 3: Enter your taxable income excluding any profit from Bitcoin sales. For most people, this is the same as adjusted gross income (AGI).
Step 4: Enter your state’s tax rate.

Part 2: For each Bitcoin sale within a tax year

Step 1: Enter the purchase date and purchase price. The purchase date can be any time up to Dec. 31 of the tax year selected.
Step 2: Enter the sale date and sale price. Make sure the sale date is within the tax year selected.
Step 3: Repeat for all Bitcoin or cryptocurrency sales within the tax year selected.

Bitcoin Tax Calculator

Example of a Bitcoin tax situation

This example calculates estimated taxes for the 2023 tax year for a person who made two sales. All values are in USD.

Person A tax and finance details

2023 Taxable income – $93,000
2023 Filing Status – Single
2023 State tax rate – 5%

Transaction #1

On Feb. 1, 2023, Jake sold Bitcoin for a total of $10,000. That Bitcoin was previously purchased on June 1, 2022, for $5,000. Since it was held for less than a year, the $5,000 profit is subject to short-term capital gains tax rates. Based on Jake’s filing status and income, the taxes are calculated as follows:

1. The first $2,375 in profit is taxed at the 22% federal tax rate.
2. The remaining $2,625 is taxed at the 24% federal tax rate.
3. The entire $5,000 is taxed at the 5% state tax rate.

$2,375 x 22% ($522.50) + $2,625 x 24% ($630) = $1,152.50 federal taxes owed on short-term capital gains

$5,000 x 5% = $250 state taxes

$1,152.50+ $250 = $1,402.50 total tax liability for transaction #1

Transaction #2

On Mach 1, 2023, Jake sells more Bitcoin for a total of $10,000. That Bitcoin was purchased on Feb. 1, 2017 for $3,000. Since it was held for longer than a year, the $7,000 profit is subject to long-term capital gains tax. The taxes are calculated as follows:

1. The entire $7,000 is taxed at the 15% long-term capital gains tax rate.
2. The entire $7,000 is taxed at the 5% state tax bracket.

$7,000 x 15% = $1,050 federal taxes owed on long-term capital gains

$7,000 x 5% = $350 state taxes owed

$1,050 + $350 = $1,400 total tax liability for transaction #2

Total taxes owed

Since both long-term and short-term capital gains are positive, the total taxes Jake owes are calculated as follows:

$1,152.50 federal short term capital gains + $1,050 federal long term capital gains + $600 state taxes owed = $2,802.50 total taxes owed

Leveraging a Tax Calculator simplifies the complex task of estimating Bitcoin taxes, offering insight into potential liabilities and supporting strategic financial planning for cryptocurrency investors. Additionally, exploring other Tax Calculators tailored to specific needs, such as income or investment portfolios, can further enhance precision and assist in comprehensive tax planning across various financial aspects.

This article is for informational purposes only and not legal or financial advice.

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