Bitcoin vs. Gold: Which is a More Tax Efficient Investment?

This post was originally posted on Forbes by Shehan Chandrasekera on May 7th, 2020

With the rise of unprecedented money printing by the Federal Reserve, the Bitcoin vs. Gold debate is trending. There are several benefits of bitcoin over gold as an investment. Often overlooked however, are the significant tax savings associated with investing in bitcoin compared to gold. The result? For a savvy investor, considerably higher post-tax returns.

Short Term: Tie

In the eyes of the IRS, “short-term” means a window of 12 months or less. From a tax perspective, there is no difference in taxes on bitcoin and gold on short term gains. Let’s say you purchase 1 bitcoin (BTC) on January 2, 2020 for $3,000 and sell it on July 5, 2020 for $10,000. You would have a taxable capital gain of $7,000 ($10,000 – $3,000). This amount will be subject to ordinary income tax rates which is based on your tax bracket. If you substitute BTC in this example with gold coins, bars, or gold ETFs, you would end up being subject to the same amount of taxes.

Long Term: 8% Saving for Bitcoin

Investing in bitcoin could save you up to 8% in taxes compared to investing in gold if you hold your investment for more than 12 months before selling (long-term investment). Cryptocurrencies like bitcoin are treated as “property” per IRS Notice 2041-21. Therefore, resulting gains are subject to capital gain taxes (maximum rate of 20%). If you sell your crypto after holding for more than 12 months, you are therefore subject to a maximum capital gain tax rate of 20%, irrespective of the amount of profit you make.

This is not the case with gold. Precious metals like gold are treated as “collectibles” under the IRS guidance. Collectibles are subject to a maximum capital gain tax rate of 28%. This means, if you have the same long term capital gain on a bitcoin investment and a gold investment, your post-tax return on investment (ROI) will be 8% higher on the bitcoin investment because you pay less taxes.

Shrewd investors looking for long term growth and hedges against the macroeconomic climate have one more reason to consider bitcoin as part of their portfolio. In the Bitcoin vs. Gold battle, bitcoin clearly wins when it comes to tax treatment.

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Disclaimer: this post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.