25 January 2023
By Roger Kennedy
Bitcoin is by far the most popular coin in Ireland due to its longevity and credibility, to say nothing of its features and benefits. Out of the other European countries, Ireland has the highest number of crypto-curious consumers – people have taken the necessary steps to learn about blockchain technology and have positive perceptions of BTC, even if the Bitcoin price history has been volatile. Even if the Central Bank has issued alerts regarding investments in digital assets, there’s no interdiction on cryptocurrencies. As a matter of fact, the Irish Government fully supports the development and adoption of new technologies to encourage digital transformation and cultivate innovation.
At present, buying Bitcoin is just a case of opening an account with a reputable crypto exchange and paying with a debit/credit card or wire transfer. If you’re new to the world of cryptocurrency, you probably don’t know that certain transactions must be reported on your taxes. Digital assets are taxed nearly everywhere in the world, with Ireland being no exception to the rule, so your gains and losses in crypto transactions will affect your taxes. Please continue reading to understand what is taxable.
Purchasing Bitcoin Won’t Give Rise to Any Taxes
Purchasing and owning Bitcoin doesn’t constitute a taxable event, meaning that you don’t have to pay or report crypto taxes. If you don’t withdraw your funds, you gain nothing from investing, so no chargeable event is triggered. As a rule, taxable events are triggered by earning money, taking profits, or selling digital assets. If you hold BTC, transfer coins from one wallet to the other, or use Bitcoin as collateral for a loan, you don’t experience any changes in your tax status. Buy crypto and hold it for as long as you like, even if the Bitcoin price increases.
If you intend to invest in BTC anytime soon, it’s recommended to stick to large, established crypto exchanges, which have verified links to major financial companies. In doing so, you’ll be able to deposit your funds securely, and the platform will protect your investment. To open an account on the exchange, you’ll need to verify your email address and identity (photo ID and proof of address might be required). It’s an essential step in the fight against fraud. Once your identity has been verified, you can deposit money using the payment method of your choice and exchange your funds for Bitcoin. If you want, you can withdraw your tokens to a personal wallet.
So, When Do You Owe Taxes on Your Bitcoin?
Any profit or income realised from your BTC is taxable, but the treatment of the digital assets will depend on the activities and parties involved. To be more precise, each case is considered in accordance with its individual facts and circumstances, so issues might arise in relation to crypto assets. In Ireland, Crypto Attracts Both Capital Gains Tax (CGT) & Income Tax (IT). As far as Capital Gains Tax is concerned, the chargeable gain is calculated as the sales proceeds minus the costs of the asset, so if you’ve incurred a loss on the investment, it can be deducted from the chargeable gain. Income Tax is mandatory if you make a trading profit or loss on crypto transactions, meaning it must be reflected on your accounts.
As mentioned earlier, Bitcoin on its own isn’t taxable, so you’re not expected to pay taxes for holding one or more coins. The Revenue Commissioners treat cryptocurrency as property for tax purposes only if you:
- Sell your Bitcoin. If you sell Bitcoin for GBP, EUR, or another fiat currency, you must pay CGT on the profits. Crypto is much like a share or rental property, so if you cash out on your funds, the Revenue views it as a chargeable gain. Attention must be paid to the fact that you’re taxed only if the total amount earned in the tax year exceeds €1,270.
- Trade your Bitcoin for another crypto. It’s possible to exchange Bitcoin for Ethereum and vice versa, but it leads to a taxable capital gain or loss. Trading one crypto for another is the same as selling crypto for fiat currency, so the transaction must be reported on your tax return.
- Use your Bitcoin to make a purchase. Since an ever-increasing number of people are investing in digital currency, Bitcoin is becoming widely accepted as a payment method. Spending crypto on goods and services is considered a taxable disposal, so it has tax implications if the realised value is greater than the price at which you acquired the coins.
For transactions subject to Capital Gains Tax, profits are taxed at the rate of 33%, while for transactions bound by Income Tax, the tax rate is around 20% or 40%.
Simple Strategies to Lower Your Crypto Taxes
The good news is that there are legal ways to reduce the amount you pay to the Revenue each year. Here are some useful tips to keep in mind:
- Hold onto your Bitcoin for the long term. Gains on crypto purchases held for less than a year are subject to tax, so hold your Bitcoin long enough to turn short-term gains into long-term gains. If you want to sell your tokens, do it after 12 months.
- Make an indirect investment in crypto. Obtain exposure to Bitcoin without buying or selling it. For example, you can buy shares of publicly traded exchanges or invest in a crypto ETF.
- Invest your profits in stablecoins. Invest your profits in stablecoins like Wrapped Bitcoin, which is interoperable with apps built on the Ethereum blockchain. It’s highly unlikely you’ll incur long-term capital losses because stablecoins ensure price stability and are tied to a reserve of fiat currency.
Keep in mind that the Revenue monitors cryptocurrency, so if you have an account with a European exchange, the Revenue presumably has your data.
All in all, pay your taxes to avoid incurring interest, penalties, or even criminal charges. As cryptocurrency adoption goes forward, it’s likely we’ll see more tax audits and prosecutions.