Your U.S. Crypto Tax Guide

Got gains or income from your Constellation investments? The IRS wants its cut. Need to understand the U.S. crypto tax rules fast? We’ve teamed up with crypto tax calculator Koinly to bring you the lowdown.

Outside the US? Check out Koinly’s dedicated crypto tax guides covering the rules from the UK to Australia.

Note: This article is provided by our partner, Koinly, to offer useful advice to the Constellation community.

How is crypto taxed?

The IRS views virtual currency as a capital asset — similar to a property or stocks. It’s this view that dictates the tax treatment. As such, you’ll pay Capital Gains Tax or Income Tax on your crypto depending on the specific transaction and whether it’s viewed as a disposal of a capital asset or income. We’ll cover both.

Crypto Capital Gains Tax

From a tax perspective, when you dispose of a capital asset like crypto, you may pay Capital Gains Tax on any gain as a result of that transaction. Disposals of crypto include:

• Selling crypto for USD or another fiat currency
• Swapping crypto for another cryptocurrency
• Spending crypto on goods or services
• Potentially a variety of DeFi investment activities where you receive liquidity pool tokens in exchange for capital. The IRS does not have guidance on this (yet!) but that doesn’t mean your transactions aren’t taxable.

So if you sell, swap, or spend crypto and make a gain as a result, you may pay Capital Gains Tax on that gain.

On the other hand, if you sell, swap, or spend crypto and make a loss, you won’t pay tax, and you can offset your losses against your gains to reduce your tax bill. If you have more losses than gains, you can offset an additional $3,000 in capital losses each year against ordinary income. If you have no gains to offset against, you can carry forward any losses to offset future gains.

How much will you pay?

How much tax you’ll pay depends on your total annual income, the time period you’ve held your crypto for, and — in some instances- the specific kind of crypto asset you’ve disposed of.

For crypto assets — including tokens, stablecoins, and NFTs — that you’ve held for less than a year before disposing of them, you’ll pay the short-term Capital Gains Tax rate. This tax rate is based on the Federal Income Tax brackets.

For crypto assets — excluding NFTs deemed collectibles — that you’ve held for more than a year before disposing of them, you’ll pay the long-term Capital Gains Tax rate which is between 0% to 20% depending on your total annual income that financial year.

Under new IRS guidance, for NFTs deemed collectibles that you’ve held for more than a year, you’ll pay the slightly higher collectibles Capital Gains Tax rate of 28%. This only applies if the underlying asset the NFT represents is determined to be a collectible under existing guidance and definitions.

Crypto Income Tax

The IRS has some guidance on when you may pay Income Tax on crypto, including:

• Getting paid in crypto
• Mining rewards
• Airdrops — including airdrops as a result of a hard fork

Before you celebrate, just because we haven’t mentioned a particular transaction above — for example, staking or DeFi investments — doesn’t mean they are taxable. It just means the IRS is yet to issue guidance. If you have these transactions you should speak to an experienced crypto accountant for guidance. But generally speaking, whenever you’re seen to be earning income from crypto, you’ll pay Income Tax based on the fair market value of your crypto in USD at the point you received it.

Another important note too — just because you’ve paid Income Tax on crypto doesn’t mean you won’t be liable to pay Capital Gains Tax on any gain later on if you dispose of your crypto by selling, swapping, or spending it.

You can find out more about U.S. crypto tax — including DeFi and staking taxes — in Koinly’s Ultimate US Crypto Tax Guide.

Tax free crypto

It’s not all bad news. Some of your crypto transactions are tax free, including:

• Buying crypto with fiat currency like USD
• HODLing crypto
• Transferring crypto between your own wallets — although transfer fees may not be
• Gifting crypto
• Donating crypto — this is tax deductible!

When do I file crypto taxes?

You need to report any capital gains, losses, or income from crypto in your annual tax return by April 15 each year and pay any tax due by this date too! If this date falls on a weekend or holiday, the deadline is moved to the next working day, so this year the deadline is April 18, 2023.

How do I file crypto taxes?

The forms you may need to file your crypto taxes depend on your specific transactions:

• For capital gains and losses from crypto, use Form 8949 and Schedule D. Report each disposal and the subsequent gain or loss in Form 8949, and your net capital gain or loss in Schedule D.
• For income from crypto, use Form Schedule 1 (1040) or Form Schedule C (1040) depending on your employment status.

You can also use tax apps like TurboTax, TaxAct, and H&R Block to report your crypto taxes online if you prefer.

How to calculate & file crypto taxes with our partner Koinly

The IRS crypto tax reporting requirements are time-consuming, which is why we’ve partnered with Koinly to make filing your Constellation taxes with Koinly simple. Here’s how it works in five simple steps:

1. Sign up or log in to your Koinly account for free. You’ll only ever pay for Koinly when you want to download your tax report.
2. Connect Constellation to Koinly. You can do this automatically using your public address. Learn how.
3. Sync all the other wallets, exchanges, blockchains, and services you use with Koinly via API or CSV file. Koinly supports 700+ platforms.
4. Koinly calculates your capital gains, losses, the fair market value of any income, and more according to the cost basis method you chose. Koinly supports multiple cost basis methods allowed by the IRS including FIFO, HIFO, and LIFO.
5. Download your tax report. Upgrade to a paid Koinly plan when you need to download your report. Koinly can generate a variety of reports for U.S. investors including the IRS Form 8949 and Schedule D, TurboTax Report, Complete Tax Report, and more. Use your report to file your preferred way!

Calculate your crypto taxes fast with Koinly and Constellation. Sign up today and save 15 % on your Koinly tax report using code BA406512

Interested in learning more about Constellation Network and connecting with the community?

Website: https://constellationnetwork.io/

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