Key Tax Trends: Crypto Taxes for the 2021 Tax Year

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Want to learn more about crypto, crypto taxes, and what it all means for your income? You have come to the right place. The TurboTax Tax Trends Report covers this topic in detail, giving you insight into key trends and data that will help you understand the landscape and tax implications in the virtual currency world.

But wait, what exactly is virtual currency?

As the Fiscal Trends Report explains, virtual currency is a “digital representation of value that functions as a medium of exchange, unit of account, or store of value.” This digital asset uses cryptography to validate and secure each transaction, which is recorded and distributed on a ledger like a blockchain. You report a cryptocurrency transaction as a taxable event on Form 1040, Schedule D, and Form 8949.

You can view the full TurboTax Tax Trends Report today. However, if you want a quick overview of our cryptocurrency data and the latest cryptocurrency tax trends, read on – we’ve got the highlights here.

About our cryptographic data

If you want to fully understand the value of our cryptocurrency tax trends, it’s important to check where and how we get our data.

We collected information from 16 million tax returns, all filed through TurboTax, and anonymized the data to protect our users. We carefully sampled to ensure we were getting information that better reflects the general US population, rather than just those who use our tax software and other TurboTax solutions. Then our experts analyzed the numbers and extracted information on financial, tax and economic trends, including taxes on virtual currencies and cryptocurrencies.

Why do we do it? Simple: We try to make tax data more accessible so it can be applied to education and tax decisions, making tax season more fun.

Top Trends in Crypto and Crypto Taxes

According to a Pew Research Center survey cited in our Tax Trends report, 16% of Americans say they have made a cryptocurrency transaction. Including:

Investing in crypto. Crypto trading. Use of Cryptography.

Interestingly, however, not the same number of people reported a crypto transaction on their tax return. As our research revealed, only 2.9% of filers reported taxable cryptocurrency transactions in tax year 2021. Why is there a gap? This can be due to many reasons, such as no taxable events to report. Our experts will continue to monitor this discrepancy and educate taxpayers on the types of crypto transactions that are taxable as cryptocurrency tax, capital gains tax, and similar tax rate rules apply. to virtual currency, which means that each taxable event must be declared correctly.

Another interesting point highlighted by our research is that there is a different percentage of cryptocurrency sale transactions by age group. People between the ages of 25 and 34 are more likely to conduct crypto sales transactions than any other age group; in fact, 4.5% of single filers in this age group listed crypto on their tax return for the 2021 tax year.

It’s not just a question of age, however. There were also differences by filing status. Here is a breakdown of the percentage of people who reported cryptocurrency transactions in 2021 based on age brackets and deposit status:

Head of household 18 to 25 years old: 0.63%. 25 to 35: 1.11%. 35 to 45: 1.29%. 45 to 55: 1.12%. 55 to 65: 0.62%. 65+: 0.24%. Married Filer Jointly 18 to 25: 4.72%. 25 to 35: 7.11%. 35 to 45: 6.08%. 45 to 55: 3.34%. 55 to 65: 1.45%. 65+: 0.57%. Married Filing Separately 18 to 25: 2.18%. 25 to 35: 3.26%. 35 to 45: 2.75%. 45 to 55: 1.49%. 55 to 65: 0.66%. 65+: 0.42%. Single 18 to 25: 2.60%. 25 to 35: 4.50%. 35 to 45: 3.37%. 45 to 55: 1.57%. 55 to 65: 0.72%. 65+: 0.29%.

This data highlights another remarkable point: crypto rates have increased across all age groups and deposit statuses since 2020. It may be because people are starting to learn more about crypto. -currency – which means they will need to know more about fair market value, digital asset management. , capital gain vs capital loss and other topics related to cryptocurrency taxes.

Points to remember about crypto tax for the 2021 tax year

It is up to individual taxpayers to research and understand the impact of crypto exchange on their taxes.

For example, previous IRS guidance – released in 2014 – clarified that virtual currency is treated as property for federal income tax purposes. This means that crypto is governed by the same tax principles that apply to “things” you own, such as cars or furniture. In 2019 and 2020, the IRS took additional steps to clarify these rules, covering topics such as cryptocurrency investments or gifts. In tax year 2021, the IRS also updated a question on tax form 1040; filers are now required to respond if they have received, sold, traded or otherwise disposed of financial interests in virtual currency.

The updated question gives an indication of who has disposed of the cryptocurrency and clarifies which virtual currency transactions should be reported.

The question about crypto assets on your 1040 tax form prompts you to think about situations that may apply to you. Keep in mind:

If you bought a cryptocurrency as an investment and then sold it, it is subject to capital gains and loss rules, just like stock trading. If you are paid in cryptocurrency after providing goods or services, the fair market value of the crypto would be included on your 1099 if you are a contractor or on your W-2 if you are paid as an employee. If you are paid in crypto, it is part of your taxable income; you will have another taxable event when you sell it. Key trends

As more and more people enter the cryptocurrency landscape, it is becoming more and more common to hear terms such as “capital gain” and “capital loss” outside of cryptocurrency trading. shares. If the gains are plentiful, you will need to focus on capital gains tax. If the tide turns, however, you should inquire about loss compensation.

A crypto investor can use “tax loss harvesting” to help balance losses and gains. How it works? Well, let’s say you have capital losses. You can offset all losses with your capital gains in cryptocurrency. If your capital losses exceed your crypto gains, you can use up to $3,000 of them to offset ordinary income, including salaries. You can take any remaining losses over $3,000 and carry them forward to the next tax year.

Get Crypto Tax Help from TurboTax

Cryptocurrency could be the next big revolution in digitalization, economics, and even personal finance. You may be starting to get to grips with how it’s taxed with the information we provide in articles like this and our Tax Trends Report – but don’t worry about knowing all the tax rules. At tax time, TurboTax Premium will guide you through your cryptocurrency transactions, allow you to import up to 20,000 cryptocurrency transactions at a time, and help you determine your gains and losses. You can meet with a TurboTax Live Full Service Premium Crypto Tax Expert who can prepare, sign, and file your taxes, so you can be 100% sure your taxes are done right.

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