How to Avoid Paying Taxes on Crypto Gains

Cryptocurrency is an asset class that has created wealth for early investors but with this wealth comes responsibility of paying taxes on any gains made from trading or investing in crypto. Here are some strategies for minimizing your crypto tax bill.

How to Avoid Paying Taxes on Crypto Gains

Cryptocurrency is a relatively new asset class that has created a great deal of wealth for early investors. However, with this wealth comes the responsibility of paying taxes on any gains made from trading or investing in crypto. Fortunately, there are some strategies you can use to minimize your tax burden and legally lower your tax bill. One of the easiest ways to reduce your tax burden is to keep your cryptocurrencies for the long term.

If you hold your crypto for more than 12 months, you'll pay less in capital gains taxes. Additionally, if you have great crypto wealth, moving to Puerto Rico could help you avoid some U. S. taxes.

This is because Puerto Rico is a U. territory with unique tax benefits, including 100% exemption from capital gains.When it comes to tax loss collection, cryptocurrency has an edge over other asset classes. The shares are subject to the “fictitious sale rule”, which states that capital losses cannot be claimed if investors buy the same shares 30 days before or after the sale. The easiest way to minimize your tax burden is to wait to dispose of your assets until they are long-term assets.Another strategy to reduce the taxes that crypto investors must pay is to offset capital gains with capital losses.

This works by subtracting losses on the crypto assets you sold during the year from taxable gains in cryptocurrencies or other investments that have appreciated in value.Selling in a low-income year can also help with short-term and long-term income taxes. If you have short-term gains, which are taxed as ordinary income, there will not be as much additional income added to it that pushes you to a higher tax bracket. For example, if you sell short-term assets when you retire and no longer earn salaries, your tax bracket could be based entirely on income from your short-term earnings.If you have long-term capital gains, a lower overall income for the year can also mean a lower tax rate on those gains. This is because the long-term capital gain rate that applies to you, whether 0%, 15%, or 20%, is based on your taxable income.Therefore, if you have lower taxable income, you are more likely to have a lower long-term capital gains tax rate.

For example, you can deal with costly medical procedures, contribute to a traditional IRA or 401 (k) plan, deposit money into a health savings account, or donate cash or property to charities.You may even want to ask a tax professional to help you discover other tax exemptions.Like other assets, such as gold, stocks or bonds, the IRS classifies cryptocurrencies as property. As a result, you don't pay taxes on bitcoin until you sell or exchange it. Keep in mind that this also applies to using profits from investing in cryptocurrencies to buy non-crypto items.There are no legal ways to avoid paying taxes on your cryptocurrencies, except by not using them. Eventually, you'll pay taxes when you sell it, use it, convert it to fiat money, exchange it, or trade it if your crypto experienced an increase in value.Bitcoin blockchain transactions are publicly available and the IRS is reported to use AI and data analysis to detect potential tax fraud.Keep in mind that cryptocurrency taxes are extraordinarily complex and the tax implications could change in the future.As a result, some investors choose to profit from cryptocurrency profits in years when their personal income is low.Whether you're new to the cryptocurrency world and intimidated by tax reporting requirements or you're an experienced trader looking for a more tax-efficient way to invest, a cryptocurrency IRA could be the smartest way to invest.Self-directed IRAs are special IRAs that allow you to invest in unique assets such as cryptocurrencies, precious metals and real estate.Similar to giving away treasured cryptocurrencies to a family member, you might also want to consider donating your cryptocurrency to charities.Your base - a tax term used to define the initial value of the coin when you received it - for the cryptocurrency you receive is the amount you report as income.If you're lucky enough to experience this then a little tax planning could help you lower the taxes you owe on your crypto earnings.

Tips for Minimizing Your Crypto Tax Bill

  • Keep your cryptocurrencies for the long term
  • Sell assets for a low-income year
  • Move to Puerto Rico if possible
  • Offset capital gains with capital losses


Cryptocurrency taxes are complex and ever-changing so it's important that investors stay up-to-date on all of the latest regulations and strategies for minimizing their tax bill.

As long as you have cryptocurrency as an investment and don't generate any income from it then generally speaking you don't owe any cryptocurrency taxes until you sell.

Cornelius Hullum
Cornelius Hullum

Award-winning food specialist. Award-winning tv buff. Total tv maven. Infuriatingly humble coffee enthusiast. Certified travel trailblazer. Passionate pop culture evangelist.

Leave Reply

Your email address will not be published. Required fields are marked *