Crypto Tax Rates by Income Bracket (2023)

In the United States, crypto can be taxed as ordinary income or capital gains, depending on which taxable event produced the earnings. Your cryptocurrency tax rate will vary based on a number of factors. Learn more about crypto tax calculation for specifics about how to calculate your crypto tax rate and how TokenTax and our expert team can help.

Mining, staking, lending, or payments for goods or services are considered ordinary income for purposes of your crypto tax bracket. You’ll pay a crypto tax rate that corresponds to your gross income, ranging from 10-37%.

Crypto trades, sales, or swaps are taxed as capital gains. Your exact cryptocurrency tax rate depends on the length of time the asset was held and your overall income, but ranges between 0-37% based on short- and long-term capital gains tax rates. These trades are reported on Form 8949.

Read on for our complete breakdown of your crypto tax rate (for U.S. traders).

U.S. crypto holders often wonder “what is my crypto tax rate?” Here’s the straightforward answer: all earnings from crypto mining, staking, or payments are taxed at your ordinary income rate (like other forms of property), which varies depending on which of the income brackets you fall into. 

The crypto capital gains tax rate, however, varies based on the length of time you held a given asset. The U.S. encourages long term trades by taxing them at the lower, long term capital gains rate. If you cold for over a year, your crypto tax rate will typically be much lower than if you hold short term.

Short-term crypto tax rate
If you hold a digital asset for a year or less, your proceeds will be considered short term capital gains. They will be taxed at your ordinary income rate, which is determined by your overall income.

Long-term crypto tax rate
If you hold cryptocurrency for more than a year, your proceeds will be taxed at the advantageous long term capital gains rate. Your rate also depends on your overall income, but long term capital gains are generally lower than the short term capital gains rates.

According to the IRS’ cryptocurrency tax FAQs, the holding period begins on the day after you receive an asset. The asset's cost basis is its purchase price plus any applicable fees.

Your cryptocurrency tax rate depends on whether you held assets for short or long term capital gains. Here’s a breakdown by income level so you can find your crypto tax bracket and crypto tax rate for the 2023 tax year (for U.S. taxpayers).

U.S. income tax brackets (2023)

U.S. long-term capital gains tax rates (2023)

- IRS

If you want to avoid higher taxes and pay a lower crypto tax rate, you should prioritize long term crypto trades whenever possible. As indicated, crypto capital gains tax rates are more favorable when you make long term capital gains.

The IRS allows specific identification accounting for digital currency. This inventory valuation method lets you track individual tax lots, so you’re able to strategically match up sales and acquisitions. If you want to lower your crypto tax rate, it is generally best to focus on long-term trading.

When you use TokenTax, you can choose which method of specific ID accounting you want to use: FIFO, LIFO, HIFO, or Minimization. This helps to ensure you get the most beneficial crypto tax rate possible, and our expert team is available to work with you to ensure your filing is thorough, accurate, and optimized.

Be aware, however, that although long term trades may lower a crypto investor’s taxes, sometimes the state and federal tax rates for an individual’s income bracket actually make short term capital gains advantageous.

Here are some common FAQs related to your crypto tax rate and crypto tax bracket, the cryptocurrency tax rate, and crypto capital gains tax.

Can I reduce my income and get to a lower crypto tax bracket?

There are some simple ways to reduce your crypto tax rate. They include:

• Qualifying deductions

• Invest in a tax-deferred 401k

• Donate to an IRS-qualified charity

• Go back to school

• Use a child care reimbursement account

• Choose a traditional IRA

• Take losses on stocks or other crypto holdings

How is cryptocurrency taxed in the United States?

Crypto is taxed like stocks and other kinds of property, and the crypto tax rate corresponds to this. When you sell or exchange your crypto for a profit, the cryptocurrency tax rates for crypto gains are the same as capital gains taxes for stocks.

A crypto tax calculator can help you determine which crypto tax bracket you land in. TokenTax can also help.

How do I avoid crypto capital gains tax?

As noted, there are numerous options to reduce your income for the purpose of lowering your cryptocurrency tax rate. Generally the simplest way to lower your crypto tax rate is to hold for long-term capital gains. 

That is, hold crypto assets for more than a year before you trade, sell, or use the crypto to make purchases. This will substantially reduce your crypto capital gains tax as you move from a short term to a long-term crypto tax rate.

Another strategy to reduce capital gains on tax on crypto is tax-loss harvesting, through which investors sell assets at a loss during market dips or at the end of the tax year to offset other capital gains and lower tax liability.

For more info on crypto tax basics, visit our Crypto Tax Guide.