Key Takeaways
- Tesla earlier this week reported a $600 million profit associated with its bitcoin holdings, which accounted for a little more than a quarter of its fourth-quarter profits.
- The company was able to book these bitcoin-derived profits thanks to a change in Financial Accounting Standards Board guidelines for crypto assets.
- MicroStrategy could be liable for billions of dollars in taxes due to the same accounting rule change.
A recent change to accounting rules may have helped deliver a $600 million profit on bitcoin (BTCUSD) holdings for Tesla (TSLA), but the same rule could potentially leave MicroStrategy (MSTR) with a multi-billion dollar tax bill.
Roughly 26% of Tesla’s net income for the fourth quarter of 2024 came from its bitcoin holdings. The company was able to book these bitcoin-derived profits due to a change in Financial Accounting Standards Board (FASB) guidelines for crypto assets.
What The New Rule Means For Bitcoin-Owning Companies
The new rules or ASU 2023-08 allow companies with bitcoin holdings to account for its value on a mark-to-market basis or depending on where it’s trading at in the markets.
“The primary advantage of the FASB’s new rules concerning the new mark-to-market rule for corporate digital asset holdings are that it will allow companies to provide the value of their digital assets in real time,” Miller & Company LLP Managing Partner & CPA Paul Miller told Investopedia.
Under previous FASB guidelines, bitcoin was treated as an “indefinite-lived intangible asset,” forcing companies to write down its value when prices dropped but preventing them from recording gains unless the asset was sold.
The old system frustrated MicroStrategy’s founder, Michael Saylor, who argued it got in the way of adoption of bitcoin as a corporate treasury asset.
Why MicroStrategy May Land a Huge Tax Bill
Bitcoin’s been on a tear last year and remains strong well into this year. Based on the new rules, MicroStrategy’s bitcoin buying spree has left it with roughly $18 billion in unrealized bitcoin gains, The Wall Street Journal reported recently. That could create a tax bill worth billions for MicroStrategy.
This reclassification of crypto assets on its books has made MicroStrategy potentially vulnerable to a 15% tax on unrealized bitcoin gains under the Inflation Reduction Act’s Corporate Alternative Minimum Tax (CAMT). That means the company could face taxes on these gains starting 2026, even without selling a single coin—a risk it acknowledged in a recent regulatory filing.
“As a result of the enactment of the IRA and our adoption of ASU 2023-08 on January 1, 2025, unless the proposed regulations with respect to CAMT are revised to provide relief, we could become subject to the corporate alternative minimum tax in the tax years 2026 and beyond,” MicroStrategy said.
Although MicroStrategy remains one of the biggest corporate bitcoin owners, other listed companies, such as Marathon Digital (MARA), Riot Platforms (RIOT), Semler Scientific (SMLR), are following its bitcoin buying playbook and could be affected by this rule change.