Do I have to pay taxes on automated crypto trading?

Taxes are unavoidable for many types of investing. This guide explains whether they apply to the money you make from crypto bots as well. Find out what you have to pay tax on and how to check how much you owe.
By:  &  James Knight
Updated: Aug 9, 2022

This beginner-friendly guide takes you through the tax implications of using an automated crypto trading robot. Learn what qualifies as automated trading is, whether it’s tax free, and find out if you need to pay tax on what you earn from one.

What is automated trading in crypto? 

It’s a way to make trades in the cryptocurrency market using software to decide what to buy and sell. Crypto robots work by using algorithms which place trades based on specific programmed criteria, or AI, which trades a coin’s price using advanced artificial intelligence technology. 

Are profits from crypto robots tax free?

Your profits may be tax free up to a certain amount but you normally have to pay some form of tax. How much you have to pay depends on a wide range of factors, such as where you live and the size of your annual income. Here are some things to consider when working out your tax burden.

Tax laws in your country

Every country, region, and jurisdiction across the world has different tax laws. The cryptocurrency market is still in its infancy and many countries are still implementing rules and regulations regarding its tax status. If profits from crypto transactions are taxable in your location (and most are), then it is highly likely that using automated software will result in having to pay tax. 

Capital gains

In most countries cryptocurrency is classed as property or an asset. This means any profits you make using automated trading software will be subject to a capital gains tax. The amount you will need to pay depends on the rules your jurisdiction has. Some regions have personal allowances, which let you make gains up to a certain threshold without paying tax – you should read up on these and take advantage of them as much as possible.

Tax free allowance

A tax free allowance is the amount you can earn from investments or income before paying any tax. In the UK for example, capital gains up to £12,300 are tax free. This means you can potentially make £12,300 using automated trading without paying tax.

But note that the allowance is for all capital gains, so you need to add up the amount you make from other investments, such as stocks or from selling your house, in addition to those you make from crypto.

Income tax

In some regions, profits from cryptocurrency trading can attract an income tax. Using automated software to generate regular income from crypto may mean you’ll have to pay income tax on your profits. With tax laws being so different depending on where you live you could end up paying capital gains tax in addition to income tax. The bottom line is that you need to be careful and spend time reading up on your local tax laws.

How can I find out if I need to pay tax on cryptocurrency automated trading?

The easiest way is to contact a tax professional or accountant who is knowledgeable on local laws where you reside. You may have to pay a fee for using a professional, and an alternative free option is to visit government websites where you should be able to find the information you need. Although, it’s worth mentioning that tax laws can be difficult to interpret and are best left to experts. In the UK you can visit the HMRC website for more information. 

Can I pay zero tax on my crypto robot profits?

It may be possible to pay zero taxes on your crypto robot profits, although this is usually only achievable if you live in a region where cryptocurrency is tax free. For example, in countries like Singapore and Portugal, profits from cryptocurrency automated trading are tax free (for now). Before you use automated software, it is important to check if crypto bot trading is legal in your country. 

What should I do now?

Now that you have some basic information about taxes in relation to automated trading you may want to start using a robot. There are lots of types of crypto bots to choose from and here on Invezz, we have reviews for some of the best known ones to help you choose. If you find a profitable bot, make sure you contact a tax advisor in your region for the best advice.

Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >

Prash Raval
Financial Writer
When not researching stocks or trading, Prash can be found either on the golf course, walking his dog or teaching his son how to kick a… read more.
James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.