Bitcoins And Capital Tax Gains: What You Should Know



Bitcoin is now finally taken seriously by the central government and is now added to exchange platforms alongside Dollars and Euros. The US treasury has acknowledged Bitcoin’s existence in the market and how it has helped the economy grow. The central government of the US has now considered Bitcoin trading legal.


At the beginning of its career, Bitcoin grabbed the attention of the traders and investors for the sole purpose of avoiding tax obligations. Bitcoin’s decentralized nature has helped the user with new financial transaction platforms that have helped them save some bucks in taxation.


However, after the successful rally in 2017, the US central authorities were able to see the potential future Bitcoin holds and declare Bitcoin to be a legal trading asset, and the traders and investors dealing with Bitcoin will be liable to pay taxes on their Crypto profits.


In addition to that, authorities were able to gauge the future threat and fraudulent activity that could come around Bitcoin Transaction. This accelerated the whole process.

Bitcoin Taxation

The central government around the world is now trying to bring the Crypto taxation into regulation. The US Internal Revenue System (IRS) is also in favor of Crypto taxation. As per IRS guidelines, cryptocurrencies behave more like assets rather than currencies. This practice will clear the tax implication on Cryptocurrencies.


Now that Bitcoin and Cryptocurrencies are considered as assets, people holding on to these assets will be taxed accordingly. They have also warned the traders and investors who are holding Crypto assets and are not paying taxes will be dealt with accordingly.


The IRS has made it clear that no matter how small or big a transaction is, you need to show all the transactions at the time of filing tax. Here is a small summary to show on what ground you have to pay tax.

  • Selling Bitcoins, Self Mined, to Third parties.
  • Selling Bitcoins, Bought from someone to third parties.
  • Paying shopping bills in Bitcoin.
  • Getting paid in Bitcoins.


  • Short-Term Gains

When you are buying and selling the Bitcoin in short intervals, it will be considered a short-term gain, and profit will be subject to income tax. The short term gains can include buying and selling Bitcoin on short notice, getting paid in Bitcoin for the work, and making micro-investments.

  • Long-Term Gains

Long-term gain means that you are buying Bitcoin and then holding it for a long period (At least one year), then the profit you will make from the Bitcoin will be considered property income and will be subject to capital gain tax.


The income tax rate for the long term investment is zero percent if your capital income is less than $78,850. The same capital increases to 15% if the capital gain is more than $78,850 to $434,550.


In conclusion, individual tax pays are lower or even 0% if you invest in the long-term. However, this also reduces the tax deduction on the losses you have accrued on long term investment.

Crypto Tax Implication

Now that you know that crypto profits are taxable, what methods fall under taxable charges? Here is how your Crypto profit will be taxed.


  • Trading in Cryptocurrencies: Buying and selling of Cryptocurrencies.
  • Exchanging: Exchanging one Cryptocurrencies with the other Cryptocurrencies.
  • Receiving payments: Getting paid for the world and services you have offered. Most of the companies even pay their employees a certain part of their salary in Cryptocurrencies.
  • Spending Crypto: Paying your utility bills and shopping bills in Cryptocurrencies.
  • Cryptocurrencies conversion: Converting Cryptocurrencies into Fiat currencies.
  • Bitcoin Mining: Earning Bitcoin reward after successfully mining one block of Bitcoin.

Special Consideration

Taxation, reporting, and filing of the Bitcoin are not as simple as you think. For starters, you need to be well informed of the bitcoin’s market price at the time of making trades. Hence, the IRS tries to maintain consistency with the reports, so if you purchased with a day’s high price, you should maintain the same for the sales.


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