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Investor Insights Blog|Do You Have to Pay Taxes on Bitcoin?

Cryptocurrency Investing

Do You Have to Pay Taxes on Bitcoin?

The IRS recently sent letters to over 10,000 cryptocurrency owners who may have neglected to pay taxes on the virtual investments or have failed to report income and pay taxes on Bitcoin or other cryptocurrency transactions.

Some cryptocurrency investors might not be aware of these tax implications when they initially invested in cryptocurrencies such as Bitcoin.

How Is Bitcoin Taxed?

The IRS treats cryptocurrency similarly to property for tax reporting purposes: the sale or exchange of tokens is a taxable event.

From CNBC:

Most trades count as short-term capital gains, which can be taxed at as high as 39% depending on income bracket. Those who hold bitcoin for more than a year and then sell it, however, are only liable for a long-term capital gains tax, which is levied at a significantly lower rate of 15% to 23.8%.

Is there a way to reduce or eliminate crypto taxes?

Like stocks or bonds, any gain or loss from the sale or exchange of virtual currency is subject to short-term or long-term gains tax… unless it’s in an IRA.

If all rules and regulations are followed, IRA funds are either tax-free or tax-deferred depending on the type of self-directed account you’re using to invest.

There are no short-term or long-term capital gains taxes on assets in an IRA. In terms of holding cryptocurrency in an IRA, the need to track individual transactions for tax reporting is eliminated.

Video: Cryptocurrency IRA FAQs

With a self-directed Traditional IRA or self-directed Roth IRA at Equity Trust, cryptocurrency investors have the ability to invest in several popular coins, including Bitcoin and Ethereum, within their tax-advantaged account through the Digital Asset Platform.

Were you one of the 10,000 cryptocurrency owners who received a letter from the IRS?

You should always seek tax advice from a tax professional. You can also learn more about how holding your crypto in a self-directed IRA might be the tax-advantaged option to potentially help eliminate or defer taxes on your coins.


What is the difference between long-term and short-term capital gains?

Long-term capital gains apply to assets that are held for over 12 months.

Short-term capital gains apply to investments that are acquired and sold in less than a 12 month time frame.

Taxes are generally lower for long-term capital gains than short-term capital gains.

Prior to making any investment decisions, please consult with the appropriate legal, tax, and/or investment professionals for advice. As a self-directed IRA custodian, Equity Trust Company will not provide investment advice or risk assessment of any investment. The digital currency market may experience a high degree of volatility and clients should consult with an investment professional before any investment is made.

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