1. Calculate the gains on your cryptocurrency: Identify how much cryptocurrency you had at the start of the tax year, the total cryptocurrency you had at the end of the year, and the total amount sold during the year.
2. Report your cryptocurrency profits on your tax return: If you are filing a federal income tax return, include your cryptocurrency gains on Form 1040, Schedule 1, under the category “Other Income”.
3. Calculate the taxes you owe: Your tax rate will depend on your total income and IRS filing status. Generally speaking, if you are below the threshold for the long-term capital gains tax rate (generally $40,000 in 2020), you may be eligible for the 0% long-term capital gains rate, otherwise, you will be taxed at the federal long-term capital gains rate. In addition, you may owe taxes at both the federal and state levels, depending on your situation.
4. Pay your taxes: Once you have calculated your total tax obligation, make sure to include the payment with your tax return. You can pay your taxes directly from your bank account or credit card.