Tax. The word may make you cringe, but it’s also a word you probably won’t want to ignore.

Bitcoin (BTC) hit $100,000 for the first time in December 2024, and while you’ve probably had your fair share of “I told you so” moments with the crypto-skeptics over the holidays, now is the time to make sure you’re keep an eye on the tax side of things if you plan to monetize profits.

It’s not just about keeping track of your own jurisdiction; You should also be aware of global regulations as your jurisdiction may adopt them in the future.

Long-term Bitcoin holders profit – and the taxman is watching

With the average long-term Bitcoin holder paying around $24,543 for their Bitcoin, it’s clear that many hodlers are now sitting on profits nearly four times that amount.

For those who have gone through ups and downs, it has been a rewarding gain.

But let’s not kid ourselves – tax authorities around the world are getting much better at tracking these gains. The days of thinking that crypto profit flies under the radar are long gone.

Whether you like it or not, the tax man is catching up, and he’s getting smarter by the day.

For example, the United States Internal Revenue Service (IRS) recently introduced a new rule stating that investors must use wallet-based cost tracking for crypto assets from 2025 onwards.

Crypto investors had to quickly adapt to changes in the IRS

Previously, crypto users could group all their assets to calculate their cost basis for taxes under the universal tracking method. But now the IRS requires that each wallet or account be treated as its own separate ledger.

This isn’t exactly good news for crypto investors, as it limits them on what counts as their cost basis for assets sold – everything must be tied to the same crypto wallet.

As a crypto-tax software platform, Koinly has had to move quickly to keep up with the changes, as have the investors who use our platform.

One of the updates we made allows users to adjust their cost basis settings from a specific date without affecting previous tax calculations.

Other countries could potentially follow the IRS’s lead in the future

I wouldn’t be surprised if this wallet tracking rule starts to spread to other parts of the world in the coming years.

Australia, the United Kingdom, Ireland and many other countries all apply a roughly similar tax treatment for cryptocurrencies to the United States. Although they haven’t introduced anything similar yet, it shouldn’t be ruled out.

It was clear from the start that tougher crypto tax legislation was on the way, and the IRS made no secret of it. Earlier in 2024, it stepped up its efforts by bringing in private experts from the crypto world to help strengthen its approach to taxing crypto.

It is not unusual for countries to adopt tax rules that have already been implemented elsewhere, and this has already happened with crypto in a few cases.

Take the approach of taxing short-term crypto gains while leaving long-term gains tax-free – something countries like Germany and Malta have already adopted.

Portugal, for example, had no crypto taxes until 2023. After that, it added a 28% tax on short-term gains, while long-term owners still get a break.

As crypto continues to grow and gain traction worldwide, it becomes increasingly important to stay on top of tax laws around the world.

Over the next few years, I expect we will see a lot of changes in how governments deal with crypto taxes.