Can Bitcoin Profits Be Taxed?
Yes if you live in a country subject to capital gains taxes. The United States Internal Revenue Service (IRS) treats cryptocurrency as “property” and is therefore subject to taxes on profits.
If you didn’t sell any Bitcoin then you aren’t subject to taxes on gains within your crypto account or digital wallet. You will only own the government taxes if you sell Bitcoin.
It’s really important to look into the tax code depending on which country you live in. I’m American and the majority of my readers live in the United States so this guide will offer advice to Americans who get hit with massive short term capital gains taxes.
How the IRS Taxes Bitcoin Gains
The IRS wants their cut of your BItcoin gains to keep the Matrix USA running at full speed.
As of 2021, the IRS uses a simple capital gains tax code for short term and long term gains.
If you sell Bitcoin for a profit then you trigger a taxable event. The amount of taxes you pay depends on how long you held Bitcoin.
If you held for less than 1 year then you are taxed at the short term capital gains rate.
If you held for more than 1 year then you are taxed at long term capital gains rate.
President Joe Biden plans to increase taxes on the rich in the future so wealthy BItcoin holders may want to adopt a HODL strategy or move to a capital gains tax friendly country like Puerto Rico.
HODL For the Long Term to Avoid Taxes
If you are worried about paying taxes on Bitcoin then never sell your Bitcoin.
Bitcoin maximalist Michael Saylor promotes this strategy to avoid all the confusing paperwork and taxes that come with trading Bitcoin.
HODLing also gives your BTC holdings more time to increase in value and purchasing power.
Use Cointracker.IO to figure out Your Taxes
If you sold Bitcoin for a profit then you’ll need to figure out how much you own the IRS in taxes.
Cointracker.io is the best Bitcoin tax software that will calculate all of this for you if you simply connect your crypto exchange to its platform. It’s a safe software to use and even personal finance Youtubers like Graham Stephen use it to manage their Bitcoin taxes.