{"id":10462,"date":"2022-03-24T22:00:00","date_gmt":"2022-03-24T22:00:00","guid":{"rendered":"http:\/\/ci029cfa104000240e"},"modified":"2025-01-28T17:09:50","modified_gmt":"2025-01-28T17:09:50","slug":"do-i-need-a-tax-advisor-for-bitcoin","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/business\/do-i-need-a-tax-advisor-for-bitcoin","title":{"rendered":"Do I Need A Tax Advisor If I Never Sell My Bitcoin?"},"content":{"rendered":"<div id=\"bsf_rt_marker\"><\/div><h2>In The United States<\/h2>\n<p>A great question.<\/p>\n<p>I mean, if you haven\u2019t sold any of your stack yet, and probably haven\u2019t incurred a taxable transaction, then why would you need to consult a professional tax advisor? You\u2019re a HODLer; you have diamond hands. You\u2019ll never sell. So, do you need to involve a tax pro?<\/p>\n<p>Short answer: Yes. Mainly because you don\u2019t know what you don\u2019t know.<\/p>\n<p>Purchasing, <em>or receiving<\/em>, bitcoin has tax implications. Most everyone who buys bitcoin dreams of selling it someday for a huge stack of fiat dollars. That\u2019s right, converting it back to fiat, even if it\u2019s just to diversify the portfolio. And in that case, you\u2019ll need to have good records at your disposal. Records of your cost basis, in order to compute your capital gains. <\/p>\n<p>Here are four potential situations that will make you happy you consulted that tax professional early on:<\/p>\n<ul>\n<li><strong>You\u2019re earning interest yield on your bitcoin.<\/strong> Most crypto exchanges offer an option to earn yield on your bitcoin, at rates ranging from 1% to 12%. The exchanges will pay your interest yield in bitcoin, not in fiat currency, so does that constitute taxable income? Yep. You need to claim that on your tax return when you earn the yield. Exchanges also offer rewards and token drops, and these are taxable immediately as well.<\/li>\n<\/ul>\n<p>Some exchanges will produce an IRS form 1099-MISC, showing you exactly how much interest you need to claim as income. However, you need to know where to look to find these tax forms. Go to your crypto exchange site, look for tax information and see if there are 1099 forms available for your current tax year.<\/p>\n<ul>\n<li><strong>You\u2019re buying and accumulating bitcoin.<\/strong> As briefly mentioned above, you will eventually need to produce good records of your cost basis in your bitcoin, so consulting a tax professional who is proficient in the tax laws involving cryptocurrencies is a good idea. No, actually, it is essential. If you don\u2019t know what records to gather or even where to start, consult a professional. <\/li>\n<\/ul>\n<p>Many crypto exchanges won\u2019t send you a nice, tidy tax form at the end of each year, detailing your purchases and sales, your cost basis or anything else that needs to go into your tax return. Unlike a stock brokerage account, crypto exchanges don\u2019t produce 1099-B forms, detailing every sale, so you need to keep good records. Some used to send out 1099-K forms, showing proceeds of stock sales if they totalled over $20,000, but most have discontinued that practice. So, for your records, I\u2019m thinking a nice Excel spreadsheet will do the trick. All purchases, cost, sales, interest, every transaction.<\/p>\n<p>Your tax professional will love you.<\/p>\n<ul>\n<li><strong>You\u2019re mining bitcoin. <\/strong> If you\u2019re mining crypto, you\u2019ve entered a whole new tax realm. Unlike purchasing bitcoin, where you aren\u2019t taxed until you sell it, bitcoin earned through mining is taxed immediately. This is where record-keeping gets really tricky. Technically, every day that your rig produces bitcoin, you have taxable income equal to the fair market value of those sats, on that day. Picturing a 365-day spreadsheet each year? Yeah. <\/li>\n<\/ul>\n<p><em>(This is where the US tax code is inconsistent. When purchasing and <a href=\"https:\/\/bitcoinmagazine.com\/guides\/how-to-sell-bitcoin\">selling Bitcoin<\/a>, it is treated as property, resulting in a capital gain or loss. But, when mined, Bitcoin is taxed immediately, as if you\u2019ve produced currency.)<\/em><\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2025\/01\/71_image1.jpg\" title=\"\"><\/figure>\n<p>Besides keeping records of bitcoin earned through mining, you\u2019ll need to keep track of expenses. Oh yeah, electricity costs \u2014 pretty significant. And the cost of those mining rigs.<\/p>\n<p>This is where you\u2019ll definitely need a tax professional to file your return. Deciding things like how to write off (or depreciate) your hardware, how to apportion your electricity usage, what other expenses to deduct, that\u2019s the domain of a tax professional.<\/p>\n<p>NOTE: Good news. When you claim income for the bitcoin you\u2019ve mined, you then have a cost basis to use against your eventual selling price. Again, consult a tax pro.<\/p>\n<ul>\n<li><strong>You receive bitcoin from a customer or client.<\/strong> You may never encounter this situation, but then again, if you are self-employed you may. I have received crypto for services provided, and have held onto it. You will probably not receive a 1099 form to use for your taxes, so keep track of it in terms of its value at the time you receive it. <\/li>\n<\/ul>\n<p>It is ordinary income, and you must claim it when you receive it. Disclose all this to your tax preparer and make sure you both keep track of it, since, as in the situation above, you\u2019ve established a cost basis to use against a future sale. <\/p>\n<ul>\n<li><strong>You have to answer \u201cThe Question.\u201d<\/strong> Every single U.S. taxpayer has to answer the following question on Form 1040, a question that has been around for a few years, but has been tweaked a bit for the 2021 filings:<\/li>\n<\/ul>\n<p><em>\u201cAt any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?\u201d<\/em><\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2025\/01\/63_image2.jpg\" title=\"\"><\/figure>\n<p>We\u2019ve discussed above situations where you\u2019ve received, bought or mined bitcoin, but have not yet sold any. In addition, you need to be aware that <em>disposing of bitcoin <\/em>may also be a taxable transaction. If you\u2019ve spent bitcoin, that\u2019s a taxable event \u2014 an event where you need to figure out the cost basis and the capital gain. <\/p>\n<p>Look, even if your crypto exchange isn\u2019t reporting your purchases and sales to the tax man, you need to do the right things. Report income. Keep records. Be ready in the unlikely event that you get audited. (In the U.S., in recent years, only .45% of taxpayers with incomes between $75,000 and $200,000 were audited.) But, if you answer \u201cYes\u201d to \u201cThe Question\u201d, then: who knows? Be prepared. <\/p>\n<p>The bottom line is, if you\u2019re invested in bitcoin, then you really need to consult a tax professional. For the uninformed, there are just too many landmines waiting to trip up crypto investors. Talk with a tax pro who\u2019s experienced with crypto. And, keep good records, early and often. <\/p>\n<hr>\n<h2>In The United Kingdom<\/h2>\n<p>Bitcoin is essentially taxed as a form of property in the U.K. Individuals should take advice appropriate to their own circumstances, but at present there are two taxes most likely to apply: <\/p>\n<p>i) Capital Gains Tax (CGT) <a href=\"https:\/\/www.gov.uk\/guidance\/check-if-you-need-to-pay-tax-when-you-sell-cryptoassets\" target=\"_blank\" rel=\"noopener\">may be due<\/a> <a href=\"https:\/\/www.gov.uk\/guidance\/capital-gains-tax-rates-and-allowances\" target=\"_blank\" rel=\"noopener\">on gains <\/a>to bitcoin\u2019s value. <\/p>\n<p>For an individual this is currently 10% or 20% (depending on their personal income tax circumstances). This is only payable on chargeable gains above the current \u201cAnnual Exempt Amount\u201d for capital gains, which is currently \u00a312,300 per year (and HMRC \u2014 Britain\u2019s tax authority \u2014 has signalled that it intends for this threshold to remain constant over the next few years).<\/p>\n<p>By way of example for CGT, a higher-rate taxpayer who bought one bitcoin in 2020 for \u00a310,000 and sold it in its entirety today for \u00a330,000, (and with no other capital gains to take into account in that tax year), would be liable to pay (30,000 &#8211; 10,000 &#8211; 12,300)*20% = \u00a31,540 in CGT.<\/p>\n<p>Given this base treatment and the ability to time sales over different tax years, it\u2019s unlikely that small-to-medium holders of bitcoin will end up paying huge amounts of CGT.<\/p>\n<p>A couple of notes. Firstly, these calculations generally use an \u201caverage cost basis,\u201d so if in the above example the bitcoin was purchased gradually over several years, it would be the overall average cost of the bitcoin that would be used for the calculation. Secondly, it\u2019s worth noting that most actions count as a disposal for CGT purposes \u2014 be that gifting bitcoin to others, trading it for other digital assets or direct spending on goods and services.<\/p>\n<p>Those trading frequently and with other crypto assets thrown into the mix may find their calculations become complicated. <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/cryptoassets-manual\/crypto22100\" target=\"_blank\" rel=\"noopener\">HMRC has a wealth of further information<\/a> on tax treatment in various circumstances.<\/p>\n<p>The second tax which may apply, for bitcoin holders lending their bitcoin out in exchange for a yield, is <a href=\"https:\/\/www.gov.uk\/income-tax\" target=\"_blank\" rel=\"noopener\">income tax<\/a>. It\u2019s worth stressing that bitcoin itself offers no risk-free yield, and I would urge Bitcoiners to consider carefully if the yield on offer fairly compensates for the credit risk they are taking on. Not your keys, not your coins! As far as tax goes, any yield generated may be liable for income tax at an individual\u2019s marginal income tax rate for the tax year in question.<\/p>\n<p>How about tax-exempt arrangements? Currently the situation in the U.K. concerning bitcoin and tax is simplified by the fact it is not possible for an individual to hold bitcoin directly within an individual savings account (<a href=\"https:\/\/www.gov.uk\/individual-savings-accounts\" target=\"_blank\" rel=\"noopener\">ISA<\/a>) or pension arrangement, both of which offer tax advantages generally. Those who want to gain some bitcoin exposure within these arrangements are limited to investment by proxy, for example by investing in companies that hold bitcoin on their balance sheet, such as MSTR, or in publicly listed Bitcoin miners or exchanges.<\/p>\n<p><em>This article does not constitute provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with a tax or legal professional. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.<\/em><\/p>\n<p><em>This is a guest post by Rick Mulvey and BitcoinActuary. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or <\/em>Bitcoin Magazine<em>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you never intend on selling your bitcoin, why might you still need an advisor?<\/p>\n","protected":false},"author":2993,"featured_media":4939,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[1831,59,236,235],"class_list":{"0":"post-10462","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-martys-bent","9":"tag-opinion","10":"tag-taxeable-events","11":"tag-taxes"},"author_data":{"id":2993,"name":"Rick Mulvey","nicename":"rick-mulvey","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/12\/img-1725-96x96.jpg"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/cashfusion-and-unequal-coinjoin-transaction-amounts.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/10462","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/2993"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=10462"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/10462\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/4939"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=10462"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=10462"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=10462"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}