Crypto Tax Brackets 2021: What You Need to Know to Stay Compliant

Understanding Crypto Tax Brackets in 2021

In 2021, the IRS continued to treat cryptocurrency as property, meaning crypto transactions are subject to capital gains tax rules. Unlike traditional income tax brackets, crypto tax obligations depend on how long you held the asset and your taxable income. Here’s a breakdown of the 2021 federal income tax brackets for single filers and married couples filing jointly:

  • 10%: Up to $9,950 (single) / $19,900 (married)
  • 12%: $9,951–$40,525 / $19,901–$81,050
  • 22%: $40,526–$86,375 / $81,051–$172,750
  • 24%: $86,376–$164,925 / $172,751–$329,850
  • 32%: $164,926–$209,425 / $329,851–$418,850
  • 35%: $209,426–$523,600 / $418,851–$628,300
  • 37%: Over $523,600 / Over $628,300

How Crypto Gains Are Taxed in 2021

Cryptocurrency gains fall into two categories:

  1. Short-Term Capital Gains: Assets held for less than one year are taxed at ordinary income tax rates (matching the brackets above).
  2. Long-Term Capital Gains: Assets held for over one year qualify for lower tax rates:
  • 0%: Up to $40,400 (single) / $80,800 (married)
  • 15%: $40,401–$445,850 / $80,801–$501,600
  • 20%: Over $445,850 / Over $501,600

Tax Strategies to Minimize Crypto Taxes in 2021

  • Hold for Over a Year: Aim for long-term gains to access lower rates.
  • Tax-Loss Harvesting: Offset gains by selling underperforming assets.
  • Use Tax-Advantaged Accounts: Invest via a self-directed IRA to defer taxes.
  • Donate Crypto: Avoid capital gains by donating appreciated crypto to charity.

Common Crypto Tax Mistakes to Avoid

  • Failing to report small transactions or peer-to-peer trades.
  • Miscalculating the holding period for assets.
  • Overlooking state taxes (some states have higher rates).
  • Not keeping records of cost basis and transaction dates.

FAQ: Crypto Tax Brackets 2021

Q: Is cryptocurrency taxed as income?
A: Yes, if received as payment or through mining/staking. Ordinary income tax rates apply.

Q: How do I calculate crypto gains?
A: Subtract the cost basis (purchase price + fees) from the sale price. Use Form 8949 and Schedule D to report.

Q: Can I deduct crypto losses?
A: Yes, up to $3,000 annually against ordinary income. Excess losses carry forward.

Q: What if I didn’t report crypto in 2021?
A: File an amended return to avoid penalties or audits. The IRS has increased crypto enforcement.

Q: Are DeFi or NFTs taxed differently?
A: No—all crypto transactions follow the same tax rules as property, including swaps and NFT sales.

CryptoLab
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