Navigating New Tax Regulations: The Implications for Crypto Investors
The IRS has rolled out a new rule for crypto investors that mandates wallet-based cost tracking, which is seen as the forefront of an evolving global tax landscape.
Navigating New Tax Regulations: The Implications for Crypto Investors
Tax. This term might evoke discomfort, but it’s a topic that should not be overlooked.
Bitcoin (BTC) reached the milestone of $100,000 for the first time in December 2024. While you may have stood your ground against the critics during the festive season, it’s crucial to be aware of the tax implications if you plan to realize your profits.
It’s essential to not only monitor the regulations specific to your area but also to stay informed about potential global trends, as local jurisdictions may adopt them eventually.
Long-term Bitcoin holders are profiting — and the taxman is observing
The average long-term holder has bought Bitcoin for approximately $24,543 and is now likely experiencing gains nearly four times that initial investment.
For those who have persisted through market fluctuations, significant profits are visible. However, the tax authorities globally are improving their methods of tracking such gains, making the notion that cryptocurrency profits can escape detection a thing of the past.
In the U.S., the Internal Revenue Service (IRS) has implemented a rule mandating that investors must use wallet-based cost tracking for cryptocurrencies starting from 2025. This change signifies a departure from the previous method, which allowed investors to aggregate assets for tax reporting.
Crypto investors had to quickly adjust to IRS changes
Previously, investors could lump all their assets under the Universal tracking method for calculating their tax basis. The new IRS rule requires each wallet or account to be recorded separately, which complicates matters for crypto investors, limiting what can be included as the basis for sold assets.
Koinly, a crypto tax software platform, has swiftly adapted to these changes, facilitating user adjustments without altering prior tax calculations.
Other countries may potentially follow the IRS’s lead in the future
This wallet-tracking policy might find traction in other nations in the near future. Australia, the United Kingdom, and Ireland maintain similar tax environments regarding cryptocurrencies to that of the U.S. While these jurisdictions have yet to adopt the new rule, it’s plausible they may in due course.
Anticipating stricter crypto tax regulations, the IRS has disclosed that it has engaged private-sector experts to enhance its approach to crypto taxation. Furthermore, countries often replicate tax laws already established in other regions — such as the taxation of short-term crypto profits, which has been implemented by Germany and Malta.
Portugal, for instance, introduced a 28% tax on short-term crypto gains in 2023, despite previously having no such taxes, while long-term holders continue to enjoy tax exemptions.
As the cryptocurrency market expands, understanding evolving tax laws internationally becomes increasingly vital. With ongoing advancements in tax regulations, we can expect substantial shifts in governmental approaches to crypto taxation over the coming years.
