Tax. The word may make you cringe, but it’s also a word 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 share of “I told you so” moments with crypto-skeptics over the holidays, it’s now time to make sure you’re aware of the tax side of things if you plan to cash in on your profits.
It’s not just about keeping track of your own jurisdiction; you should also stay informed about global rules, as your jurisdiction may adopt them in the future.
Long-term Bitcoin holders are benefiting – and the IRS is watching
With the average long-term Bitcoin holder having paid around $24,543 for their Bitcoin, it is clear that many hodlers are now making profits almost four times that.
For those who have gone through the ups and downs, it has been a rewarding reward.
But let’s not kid ourselves: tax authorities around the world are getting better and better at tracking these gains. The days of thinking that the benefits of cryptocurrencies went unnoticed are long gone.
Whether you like it or not, the IRS is catching up and they’re getting savvier by the day.
For example, the United States Internal Revenue Service (IRS) recently introduced a new rule stating that investors must use portfolio-based cost tracking for crypto assets starting in 2025.
Crypto investors had to quickly adapt to IRS changes
Previously, crypto users could pool all their assets together to calculate their cost basis for taxes using the universal tracking method. But now the IRS requires that each portfolio or account be treated as its own separate ledger.
This isn’t exactly good news for crypto investors, as it limits them on what counts as the cost basis for assets sold – everything has to be linked to the same crypto wallet.
As a crypto tax software platform, Koinly has had to move quickly to keep up with the changes, as have the investors who use our platform.
One of the updates we made allows users to adjust their cost basis settings starting from a certain date, without affecting previous tax calculations.
Other countries could potentially follow the IRS’ lead in the future
I wouldn’t be surprised if this portfolio tracking rule starts expanding to other parts of the world in the coming years.
Australia, the United Kingdom, Ireland, and many other countries all have tax treatment of cryptocurrencies quite similar to that of the United States. Although they haven’t introduced anything like this yet, it shouldn’t be ruled out.
It was clear from the start that stricter cryptocurrency tax laws were on the way, and the IRS made no secret of it. Earlier in 2024, it stepped up its efforts by bringing in private sector experts from the crypto world to help strengthen its approach to crypto taxation.
It is not uncommon for countries to adopt tax rules that have already been implemented elsewhere, and this has already happened in a few cases with crypto.
Take the approach of taxing short-term crypto gains while leaving long-term gains tax-free – something countries like Germany and Malta have already adopted.
Portugal, for example, had no taxes on cryptocurrencies 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, it becomes increasingly important to stay up to date with tax laws around the world.
Over the next few years, I expect we will see many changes in the way governments handle crypto taxes.
