• Smart Cash
  • Log in
  • Get Started

Table of Contents

What are cryptocurrency taxes?

What is the cryptocurrency tax rate?

The bottom line

LearnCryptocurrency 101Guide to Cryptocurrency Taxes

Guide to Cryptocurrency Taxes

Jun 21, 2022


5 min read

Having defined Bitcoin and other digital tokens as property, the IRS treats them as taxable assets like stocks, real estate, and other non-employment income.

Regulators have struggled for years to define cryptocurrencies. Are they securities? Assets? Contracts? Something else? There is one agency that hasn’t had any trouble nailing down Bitcoin and its ilk, and that’s the Internal Revenue Service.

What are cryptocurrency taxes?

The US government’s tax collector treats cryptocurrencies as property. When investors sell tokens and pocket profits, usually in exchange for US dollars, they are obliged to pay capital gains taxes. That’s no different from paying Uncle Sam on returns from stocks, real estate, or other money-making investments. So even though someone may feel like they’re trading virtual instruments outside the bounds of the financial system, in the eyes of the IRS, they’re not.

Moreover, there’s a push by Washington lawmakers to require cryptocurrency exchanges and platforms to record their clients’ transactions and provide customers with 1099 forms to submit with their annual tax returns. These forms report non-employment income, such as investment gains, of at least $600. (Coinbase, the publicly traded crypto exchange, started issuing 1099s to its customers in 2020.) The application of 1099s to cryptocurrencies further shows how blockchain-based assets are being assimilated into the financial mainstream with all the necessary requirements.

As for US states, the rule of thumb at the moment is that they follow federal guidelines and treat cryptocurrencies as property. Tax lawyers say some states are considering adding special provisions. New Jersey officials, for instance, have said wages paid in cryptocurrencies are subject to withholding. Likewise, Wisconsin has said tax rules for property transactions apply to crypto.

What is the cryptocurrency tax rate?

When determining how much tax is owed, investors don’t have to worry about special rates or treatment for cryptocurrencies. The first thing to do is tally the proceeds from cryptocurrency sales in the tax year and subtract the purchase price from the sum. That’s the gain.

Next is determining the tax rate. It’s set by how long the investment was held and the taxpayer’s income. Short-term capital gains earned within 12 months of the cryptocurrency’s purchase are subject to a tax rate that ranges from 10 to 37%, which is essentially the same as one’s ordinary income tax rate. Long-term capital gains on holdings of more than a year go from zero to 20%.

Taxpayers’ income levels determine the precise rate. The more they earn, the higher the rate. An individual, for example, who earned between $80,000 and $441,450 in employment income and made, say, $10,000 on the short-term sale of Bitcoin would be taxed at 15%. That translates into a bill of $1,500.

It’s important to note that, just as with most other investment income, cryptocurrency losses can offset capital gains. This is calculated by subtracting the losses on the sale of underwater cryptocurrencies from the wins; taxes are owed only on the net difference. One other note: Short-term losses can only offset short-term capital gains, and likewise with long-term capital gains and losses.

Are cryptocurrencies taxed like stocks?

The short answer is yes. They are taxed at the same rate and with the same general criteria. Just like equities or other assets, taxpayers can donate cryptocurrencies to tax-exempt charities or give them as gifts with no liability.

Even so, there is one major difference between cryptocurrencies and stocks: Digital tokens can be used to buy goods and services. Lest we forget, Bitcoin was introduced in 2009 as an alternative form of money. There’s a whole panoply of things investors can buy with the token and others such as Ethereum or Litecoin. They run the gamut from real estate to works of art— Sotheby’s recently started accepting Bitcoin and Ether as payment for non-fungible tokens (NFTs)— to trips on Virgin Galactic’s space flights. And, of course, investors can use crypto to buy a beer and a pizza at any number of Bitcoin-friendly cafes. That’s something they can’t do with shares of Walmart.

So what does that mean? Well, as soon as a consumer pays for something with cryptocurrency they’ve just cashed in a taxable asset. That’s how the IRS sees it. “In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability,” the agency states in a notice.

In other words, a consumer would be responsible for calculating how much the cryptocurrency has appreciated in value at the time it was used as payment and subtract the purchase price to yield the taxable gain. Quite a hassle for a slice and a pint. The cryptocurrency industry is lobbying to exempt relatively small transactions from this treatment.

How are decentralized finance tokens like Ethereum taxed?

There’s another consideration for crypto investors: Exchanging digital tokens is also a taxable event (see Question 16 in this IRS FAQ). That’s important because in the world of decentralized finance (DeFi), swapping tokens is huge.

DeFi is built around Ethereum. And unlike Bitcoin’s rather singular purpose to serve as legal tender, the second most valuable cryptocurrency is designed to support software applications and virtual organizations on a variety of blockchains. To make things work in the DeFi ecosystem, users often swap tokens from one platform to another. That activity is a key driver in the value of big DeFi names such as Uniswap, Curve, and MakerDAO.

Another rapidly growing business in DeFi is lending tokens to other investors. A number of platforms (Aave, which sports a market capitalization of $4.2 billion, is one of the biggest) accept deposits from investors and then turn around and lend the tokens to other customers just like a bank. In contrast with traditional lenders, DeFi outfits pay annual interest rates that can top 10%. That’s not a capital gain, but the IRS does consider that taxable income.

Likewise, when DeFi platforms conduct “airdrops” of free tokens to users as part of marketing campaigns, recipients are also on the hook to report the windfalls and pay income tax. The same treatment applies to earnings derived from mining cryptocurrencies. That’s the business of using loads of computing power to process and record cryptocurrency transactions on blockchains and mint tokens as rewards. The IRS says that revenue is also subject to income tax.

How are tax rules and enforcement changing?

It’s unclear how the IRS may ultimately treat token swapping and other activities in DeFi because it is such a new phenomenon. Yet the agency, in tandem with Gary Gensler, the chair of the Securities and Exchange Commission, appears intent on applying existing law to cryptocurrencies and bringing the industry inside the regulatory perimeter.

In May 2021, a federal judge authorized the IRS to seek information from Kraken, a major cryptocurrency exchange, on trades executed by customers exceeding $20,000. The message was clear. “There is no excuse for taxpayers continuing to fail to report the income earned and taxes due from virtual currency transactions,” IRS Commissioner Charles Rettig said in the statement.

The upshot for investors is simple: They will be on the hook for recording and maintaining thorough records of their cryptocurrency investments. The accounting industry has swung into action with services for a marketplace that is now worth more than $2.5 trillion. The American Institute of Certified Public Accountants has released guidance on handling cryptocurrency assets. A crop of companies such as Taxbit are specializing in this burgeoning practice area.

The bottom line

The days when cryptocurrencies were considered untamable assets operating outside the bounds of the financial system are gone. Having defined Bitcoin and other digital tokens as property, the IRS treats them as taxable assets like stocks, real estate, and other non-employment income.

Investors must record and report their gains and losses and pay appropriate taxes when they file their annual returns. Taxpayers can account for cryptocurrency gains under the same rules as stocks. But Bitcoin and DeFi enthusiasts must recognize that the IRS considers spending digital tokens on goods and services or other cryptocurrencies as potentially taxable events. Moreover, earning interest from lending crypto deposits or receiving airdrops is considered taxable income.

At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.

Get started today.


Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.

You might also like

Understanding the Different Types of Cryptocurrency

How many cryptocurrencies are there? Answers vary but in short: a lot. As many as 70,000, by one estimate.

Read More

What Is Digital Currency? Types, Advantages, and Examples

Digital money isn’t necessarily new. Today, thanks to the rise of digital payments and cryptos, individuals may be more likely to buy and spend virtual currencies.

Read More

What Is a Crypto Token and How is it Different From a Coin?

Developers can launch a crypto token to build on top of an existing blockchain’s features and popularity. Learn how they also can focus on creating, promoting, and updating it.

Read More

Can You Short Crypto?

There are many ways for investors to bet against Bitcoin and Ether and sell them short. Learn how these often involve derivatives such as futures contracts.

Read More

Cash Management

Smart Cash

Smart Cash FAQs

Cash Options

Get Smart Cash


© Copyright 2023 Titan Global Capital Management USA LLC. All Rights Reserved.

Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept and agree to Titan’s Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.

Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.

Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.

The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.

Cryptocurrency advisory services are provided by Titan. Cryptocurrency trading is provided by Bakkt Crypto Solutions LLC ("Bakkt Crypto"). Bakkt Crypto is not a registered broker-dealer or a member of SIPC or FINRA. Cryptocurrencies are not securities and are not FDIC or SIPC insured. Bakkt Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Cryptocurrency execution services are provided by Bakkt Crypto (NMLS ID 1828849) through a software licensing agreement between Bakkt Crypto and Titan. Please ensure that you fully understand the risks involved before trading: bakkt.com/disclosures.

Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.

Contact Titan at support@titan.com. 508 LaGuardia Place NY, NY 10012.