If you own a cryptocurrency like Bitcoin and are ready to sell it, you need to know how this might affect your yearly taxes. Bitcoin and other cryptocurrencies are treated as digital assets, making them subject to capital gains taxes rather than adding to taxable income. Capital gains tax is a tax on the gain in value between when you bought an asset and when you sold it. If you held a Bitcoin for less than a year, it's considered short-term and the $1,000 profit will be taxed as part of your income for the year. However, if you have owned your Bitcoin for 366 days or longer, you pay long-term capital gains, which is between 0%, 15% and 20%, depending on income level. The Net Investment Income Tax adds another 3.8% onto your tax bill.