If you don't sell your crypto, you generally don't pay Capital Gains Tax (CGT) because the gain isn't "realised," but you still face risks like theft or technical issues, and you'll owe tax later if you eventually sell, trade, or use it to buy goods/services, potentially incurring penalties if records are poor. Holding it long-term means potential gains or losses, but no tax event until a "disposal" occurs, which includes trading it for another crypto or fiat currency.
The tax situation is straightforward if you bought crypto and decided to HODL. The IRS does not require you to report your crypto purchases on your tax return if you haven't sold or otherwise disposed of them. HODL and you're off the hook. The tax event only occurs when you sell.
HMRC doesn't tax potential profits, only realised gains. In fact, only gains are taxed—not the entire value of your holdings. Your crypto can go to the moon and back, but until you make a disposal, there's no tax to pay. Market value fluctuations alone don't create tax liability.
If you don't sell your crypto, you typically don't owe taxes—but there are exceptions. Earning crypto through staking, airdrops, or as a salary still counts as taxable income and must be reported, even if you don't convert it to cash.
For starters, the ATO's position is that all cryptocurrencies as capital gains taxable assets. So, just like property or investments, simply holding cryptocurrency is not going to attract any taxes. At least, not until you dispose of it.
How to avoid tax on cryptocurrency
Additional losses can be carried forward to future years. Holding cryptocurrency for 12 months or longer qualifies you for lower long-term capital gains tax rates. Selling crypto in a year when your income is lower can reduce the taxes you owe. Gifting cryptocurrency is generally not a taxable event for the giver.
Taking a buy-and-hold position in Bitcoin five years ago would have delivered massive returns for investors. As of this writing, Bitcoin is up 962.3% over the period. That means that a $1,000 investment in the token made half a decade ago would now be worth more than $10,620.
Buying or selling cryptocurrency as an investment
Buying cryptocurrency isn't a taxable event by itself. You can choose to buy and hold cryptocurrency for as long as you'd like without paying taxes on it, even if the value of your position increases.
Probly has more to do with the fact that selling btc as with stocks/etfs, usually ends up costing you more than it makes in the long term. If you are in something and believe it will continue to perform well into the future, you hold and get more on dips, you don't sell it.
30-day rule
If you sell crypto and buy the same type within 30 days, use the new purchase to calculate your earlier gain.
If you're abroad
You have to pay tax on gains you make on property and land in the UK even if you're non-resident for tax purposes.
HMRC treats crypto as property for tax purposes. Profits from disposing of crypto (over the £3,000 tax-free allowance) are taxed as capital gains at 18% or 24%. Income from crypto (like mining rewards) is taxed at 0% to 45%. You must report crypto in your self-assessment tax return by January 31.
Penalties And Legal Consequences
Underreporting or failing to declare crypto earnings can lead to fines ranging from 25% to 75% of the tax shortfall, depending on the intent. Severe cases involving willful evasion may result in prosecution or even jail time.
Donate or gift your crypto.
Donations could actively reduce your tax bill, while gifting could help you avoid paying taxes on gains. Gifting crypto is generally not taxable unless the value of the crypto exceeds the current year's gift tax exclusion amount at the time of the gift.
While there's no way to legally evade taxes, here are some strategies that can help you legally reduce your tax bill.
If you forgot to report crypto on taxes, you could face penalties from the CRA and owe back taxes on unreported transactions. You can go back to file unreported income, and there are ways to avoid the penalties that come with it.
What is considered a taxable event in cryptocurrency transactions? Taxable events in cryptocurrency transactions include the sale or exchange of cryptocurrencies, receiving cryptocurrencies as payment, and mining or staking rewards. These events generally trigger capital gains or ordinary income tax obligations.
Based on your prediction that Bitcoin will change at a rate of 5% every year, the price of Bitcoin would be $95,038.65 in 2027, $115,520.07 in 2031, $147,436.14 in 2036, and $188,170.03 in 2041. Scroll down to view the complete table showing the predicted price of Bitcoin and the projected ROI for each year.
IF YOU HAD INVESTED $100 IN BITCOIN IN 2010, IT COULD BE WORTH $11 BILLION TODAY In 2010, Bitcoin (BTC) traded for less than one cent. A $100 investment back then could now exceed $11 billion and rank among the most remarkable returns in financial history.
15 years ago: A $1 investment would be worth $1.62 million since Bitcoin is up 162 million percent from August 2010.
Crypto and the Wash Sale Rule
The wash sale rule (also known as the 30-day rule) puts limitations on tax loss harvesting when it comes to stocks and securities. The IRS says that you must wait 30 days before buying the asset back. However, most cryptocurrencies and NFTs don't have this restriction.
Hold your cryptocurrency for the long-term
When you dispose of your cryptocurrency after 12 months or more of holding, only 50% of your gain will be considered taxable income. Meanwhile, 100% of the gains from cryptocurrency disposed of after fewer than 12 months is considered taxable income.
The Internal Revenue Service generally treats crypto like property, similar to stocks or real estate, so selling crypto can trigger a capital gain or loss. But many investors have been able to use a "tax cheat" to avoid reporting crypto on a tax return without getting in trouble with the IRS.