Ordinary Income Rate

The ordinary income rate is the percentage of income paid to the government based on the tax bracket of the individual or entity. Unlike capital gains rates, which may be lower for long-term investments, the ordinary income rate applies to wages, interest, and short-term speculative gains.

In the context of cryptocurrency, any gains realized from selling assets held for less than one year are generally taxed at this rate. This makes the ordinary income rate a critical factor in determining the net profitability of short-term trading strategies.

Because these rates are progressive, they increase as total taxable income rises. Taxpayers must be aware of their specific bracket to estimate their tax liability accurately.

Proper financial planning often focuses on strategies to mitigate the impact of high ordinary income rates on total returns.