What to Know About Capital Gains Taxes on Stocks and Crypto
Whether you’re a seasoned investor or new to the world of stocks and crypto, understanding capital gains taxes is crucial to minimizing your tax bill and staying compliant with the IRS. Here’s what you need to know about how these taxes apply to your investments in both stocks and cryptocurrency.
📈 Capital Gains Tax: What Is It?
A capital gain is the profit you make from selling an investment for more than you paid for it. The IRS taxes capital gains based on how long you hold the asset before selling it:
Short-term capital gains: If you sell an asset within one year or less, the gain is taxed as ordinary income at your regular tax rate.
Long-term capital gains: If you hold the asset for more than one year, the gain is taxed at a lower rate, typically 0%, 15%, or 20%, depending on your income.
💹 Stocks: Tax Rates and Holding Periods
When you sell stocks, the type of gain—short-term or long-term—determines how much you owe in taxes:
Short-term gains: Taxed at your ordinary income tax rate, which can range from 10% to 37% depending on your income.
Long-term gains: The tax rate is typically 15%, though it can be 0% for lower-income earners and 20% for higher-income earners.
Remember, holding your stocks for more than a year to take advantage of the lower long-term rates can result in substantial tax savings.
💻 Crypto: The Same Rules Apply (Sort Of)
Cryptocurrency, like Bitcoin, Ethereum, and other digital currencies, is subject to capital gains taxes just like stocks. However, there are a few key things to keep in mind:
Taxable events: Crypto is taxed whenever you sell, trade, or exchange it for another cryptocurrency, goods, or services. Even staking rewards and airdrops are taxable.
Holding period: The tax treatment of your crypto depends on whether you held it for less than one year (short-term) or longer (long-term).
For example, if you bought Bitcoin for $10,000 and sold it for $30,000, the $20,000 gain would be subject to capital gains taxes.
💸 Tax Reporting for Stocks and Crypto
Stocks: Your brokerage firm will provide a Form 1099-B that details your gains and losses, making it easier to report.
Crypto: Since exchanges don’t provide comprehensive reports like brokerages, you’ll need to keep track of each transaction. Many platforms, such as Coinbase or Binance, offer tax reports for your crypto trades to make filing easier.
🧐 How to Minimize Capital Gains Taxes
Hold for the Long-Term: By holding investments for over a year, you can benefit from lower long-term capital gains rates.
Offset Gains with Losses: Consider tax-loss harvesting, where you sell losing investments to offset the gains on other sales.
Utilize Tax-Advantaged Accounts: Maximize contributions to retirement accounts like IRAs, where you can defer taxes on gains.
Need Help Navigating Capital Gains Taxes?
Whether you’re investing in stocks, crypto, or both, understanding how to report and minimize capital gains taxes is essential. At SuperNOVA Tax Solutions, we specialize in helping investors like you optimize tax strategies and stay on top of IRS requirements.