Tax. The word may bring you to your knees, but it’s also one you probably don’t want to ignore.
Bitcoin (BTC) hit $100,000 for the first time in December 2024, and while you probably had your fair share of “I told you so” moments with crypto skeptics over the holidays, today it’s time to make sure you’re clued in on the tax side of things if you’re planning to cash in on the profits.
It’s not just about monitoring your own jurisdiction; you should also remain aware of international rules, as your jurisdiction may adopt them in the future.
Long-term holders of Bitcoin are making money — and the taxman is watching
In the typical long-term Bitcoin holder with paid around $24,543 for their Bitcoin, it’s clear that many hodlers are now sitting on profits of nearly four times that amount.
For those who have struggled through ups and downs, this is a satisfying payoff.
But let’s not kid ourselves — tax authorities around the world are getting better at tracking these gains. The days of thinking crypto profits fly under the radar are long gone.
Like it or not, the tax man is catching up, and he’s getting smarter every day.
For example, the United States Internal Revenue Service (IRS) recently introduced a new rule that states that investors should use wallet-based expense tracking for crypto assets from 2025 onwards.
Crypto investors need to quickly adapt to the IRS changes
Previously, crypto users could group all their assets to calculate their cost-basis for taxes under General tracking method. But now, the IRS requires that each wallet or account be treated as its own separate ledger.
This isn’t exactly good news for crypto investors, as it limits them to what counts as their cost-basis for assets sold — all have to be tied to the same crypto wallet.
As a crypto tax software platform, Koinly needs to move quickly to keep up with changes, just like the investors who use our platform.
One of the updates we made allows users to adjust their cost-basis settings from a specific date, without affecting previous tax calculations.
Other countries may follow the IRS’s lead in the future
I wouldn’t be surprised if this wallet tracking rule starts spreading to other parts of the world in the coming years.
AustraliaUnited Kingdom, Irelandand many other countries all apply somewhat similar tax treatment to cryptocurrencies as the United States. Although they haven’t introduced themselves like this yet, it shouldn’t be taken for granted.
It was clear from the start that tougher crypto tax laws were on the way, and the IRS made no secret about it. Earlier in 2024, it boosted their efforts by bringing in private sector experts from the crypto world to help strengthen their crypto taxation strategy.
It’s not unusual for countries to adopt tax rules that are already in place elsewhere, and this has happened with crypto in some cases already.
Take the approach of taxing short-term crypto profits while leaving long-term profits tax-free — something countries like Germany and Malta have already adopted.
Portugal, for example, will have no crypto taxes until 2023. Then, it added a 28% tax on short-term gains, while long-term holders still get a break.
As crypto continues to grow and gain traction around the world, staying on top of global tax laws becomes even more important.
In the next couple of years, I expect we will see a lot of changes in how governments handle crypto taxes.
