Tax. The word may make you cringe, 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’ve probably had your fair share of “I told you so” moments with crypto skeptics over the holidays, now’s the time to make sure you’re staying on top of it. of the tax aspect if you plan to profit from the profits.
It’s not just about keeping track of your own jurisdiction; You should also be aware of global rules, as your jurisdiction may adopt them in the future.
Long-term Bitcoin holders are benefiting, and the taxman is watching
Given that the average long-term Bitcoin holder has paid around $24,543 for their Bitcoin, it is clear that many hodlers are now making profits almost four times that amount.
For those who have made it through the ups and downs, it has been a rewarding reward.
But make no mistake: tax authorities around the world are getting much better at tracking these profits. The days when cryptocurrency gains were thought to go unnoticed are long gone.
Whether you like it or not, the taxman is catching up and getting smarter every day.
For example, the United States Internal Revenue Service (IRS) recently introduced a new rule stating that investors must use wallet-based cost tracking for crypto assets starting in 2025.
Cryptocurrency Investors Had to Quickly Adapt to IRS Changes
Previously, cryptocurrency users could pool all their assets to calculate the cost basis of taxes based on the universal tracking method. But now, the IRS requires that each wallet or account be treated as its own independent ledger.
This isn’t exactly good news for cryptocurrency investors, as it limits them on what is considered their 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’ve made is to allow users to adjust their cost basis settings as of a certain 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 to spread to other parts of the world in the next few years.
Australia, the United Kingdom, Ireland, and many other countries apply fairly similar tax treatment to cryptocurrencies as the United States. Although they have not yet presented anything like this, it should not be ruled out.
It was clear from the beginning that stricter crypto tax laws were coming, and the IRS made no secret of it. In early 2024, it stepped up its efforts by bringing in private sector experts from the cryptocurrency world to help bolster its approach to taxing cryptocurrencies.
It is not unusual for countries to adopt tax rules that have already been implemented elsewhere, and this has already happened with cryptocurrencies in some cases.
Take for example the approach of taxing short-term crypto profits and leaving long-term profits tax-free, something that countries like Germany and Malta have already adopted.
Portugal, for example, had no taxes on cryptocurrencies until 2023. It then added a 28% tax on short-term gains, while long-term holders still get a break.
As cryptocurrencies continue to grow and gain traction around the world, staying on top of tax laws around the world becomes increasingly important.
In the coming years, I expect we will see many changes in the way governments handle cryptocurrency taxes.
