We’ve been asked a couple of times recently about the tax implications of withdrawing your original capital. “If we invest $100,000 in Bitcoin and it rises to $300,000 and we decide to take out our original $100,000, are we just recovering our original investment and therefore tax is not due on this?”
Unfortunately, that’s not how the profit is calculated. This is not isolated to just cryptocurrency but to all businesses. It is the difference between cash accounting and profit accounting.
Let’s have a look at the example (now with quantities of Bitcoin purchased, which is required to provide an answer).
Purchase 1 BTC for $100,000 – the price per BTC is $100,000
Sale Price 0.33 BTC for $100,000 – price per BTC is $300,000
To calculate the profit, we need to compare the quantity sold against the quantity purchased. In this example, the cost value of the 0.33 of the BTC purchased is $33,333. Only this way are we able to compare apples with apples to calculate the profit correctly.
Profit = Sale price less purchase price – comparing 0.33 BTC purchased against 0.33 BTC sold.
Profit = $100,000 (0.33 BTC sold) less $33,333 (0.33 BTC purchased)
Profit = $66,670
Contact Us
Contact Tim Doyle for a call or meeting to discuss any cryptocurrency tax or accounting questions. Our office is in Cambridge, Waikato, or we can arrange a video conference call.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
