How are Crypto Options Taxed?
If you're investing in crypto options - you might be in for a surprise tax bill. Learn about Bitcoin and crypto options and how they're taxed in our guide.
Or if you have no clue what crypto options are, then learn more in our Bitcoin options guide.
How are crypto options taxed?
In short, it's likely you'll pay Capital Gains Tax on any profits from your crypto options.
Most tax offices around the world - including the IRS - haven't yet issued guidance on crypto options specifically just yet. However, there is plenty of guidance on the taxation of options for more traditional financial markets, like stock options, and we can use these guidelines as the likely tax treatment of our crypto options.
Generally speaking, any profits from crypto options are subject to Capital Gains Tax at the point you close your position. This includes when you, sell the options, exercise the options to buy/ sell, or when the contract expires.
So when you open a position, you shouldn't pay tax. It's only when you close your position that you'll realize a capital gain or loss and pay Capital Gains Tax or claim a capital loss.
The easiest way to look at the different potential tax liabilities is to look at the different potential transactions involved in crypto options.
Please note there is no official guidance from the IRS or other tax offices on crypto options and these rules may be subject to change at short notice. You should seek guidance from an experienced accountant to help you navigate the tax liabilities of your circumstances as this is a complex area.
Crypto options tax
There are a few potential taxable scenarios involved in crypto options.
If you exercise your options contract to buy/sell crypto, the difference between the strike price and the fair market value of your crypto will be a capital gain or loss. Capital gains would be subject to tax at the usual short or long-term rates.
If you hold your options contract and it expires without buying an asset, you may be able to deduct the premium paid for the contract as a capital loss.
If you sell your call options contract before it expires, the difference between your premium and the sale price will be a capital gain or loss. Capital gains would be subject to tax at the usual short or long-term rates.
For sellers, premiums would be subject to Capital Gains Tax. Losses from contracts would be deductible capital losses.
Read next: Learn about crypto tax rates
How can Koinly help with crypto options trading taxes?
Koinly is a crypto tax tool that calculates your crypto taxes for you, meaning you don’t have to go through the hassle of doing it yourself. In particular, for investors with potentially hundreds of positions from options contracts, Koinly can save you hours of identifying and calculating gains and losses, because Koinly can calculate your realized gain or loss from crypto options and generate your tax report, ready to file. Best of all, Koinly is completely free to use as a portfolio tracker - you'll only ever pay when you want to download a tax report.
If you're interested in exploring other tools for crypto options trading, we've put together a guide to the best crypto options trading platforms.