Tesla’s $600M Bitcoin Gain vs. MicroStrategy’s Potential Multi-Billion Dollar Tax Bill
A recent change in accounting rules has had a profound impact on companies holding bitcoin. On one hand, Tesla has reported a $600 million profit associated with its bitcoin holdings, accounting for over 26% of its fourth-quarter profits. On the other hand, MicroStrategy may be facing a multi-billion dollar tax bill due to the same accounting rule change.
The New Accounting Rule: ASU 2023-08
The Financial Accounting Standards Board (FASB) introduced a new rule, ASU 2023-08, which allows companies to account for their bitcoin holdings on a mark-to-market basis. This means that companies can record the value of their bitcoin holdings based on current market prices, rather than the historical cost.
The Impact on Tesla
Tesla’s $600 million profit from its bitcoin holdings is a direct result of the new accounting rule. The company was able to book the profit due to the increase in bitcoin’s value over the reporting period. This highlights the potential benefits of the new accounting rule for companies holding bitcoin.
The Potential Consequences for MicroStrategy
MicroStrategy, on the other hand, may be facing a significant tax bill due to the same accounting rule change. The company has approximately $18 billion in unrealized bitcoin gains, which could be subject to a 15% tax under the Corporate Alternative Minimum Tax (CAMT). This could result in a tax bill of billions of dollars for MicroStrategy.
The Broader Implications
The new accounting rule has significant implications for companies holding bitcoin. While it provides more flexibility in accounting for bitcoin holdings, it also introduces new risks and complexities. Companies must carefully consider the potential consequences of the new rule and ensure that they are in compliance with all relevant regulations.
Key Takeaways
1. New accounting rule: ASU 2023-08 allows companies to account for bitcoin holdings on a mark-to-market basis.
2. Tesla’s $600 million profit: The company’s bitcoin holdings generated a significant profit due to the new accounting rule.
3. MicroStrategy’s potential tax bill: The company may be facing a multi-billion dollar tax bill due to the same accounting rule change.
4. Broader implications: The new accounting rule has significant implications for companies holding bitcoin, introducing new risks and complexities.
As the accounting landscape continues to evolve, companies holding bitcoin must remain vigilant and adapt to the changing regulatory environment. The contrast between Tesla’s $600 million profit and MicroStrategy’s potential tax bill serves as a reminder of the complexities and uncertainties surrounding bitcoin accounting.
EXCERPT
Why A New Rule Helped Tesla Get $600M in Bitcoin Gains But May Cost MicroStrategy Billions
graphic showing bitcoin above $100K, Microstrategy and its chairman Michael Saylor
Investopedia / Photo composite by Alice Morgan / Getty Images
Key TakeawaysTesla 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.1 The company was able to book these bitcoin-derived profits due to a change in Financial Accounting Standards Board (FASB) guidelines for crypto assets.2
What The New Rule Means For Bitcoin-Owning CompaniesThe 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.3
Why MicroStrategy May Land a Huge Tax BillBitcoin’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.4 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.5
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.
Source: Investopedia
