6 Hacks to Decrease Your Crypto Tax Liability

Is the IRS taking a huge cut of your cryptocurrency gains? Maybe you traded one cryptocurrency to another at just the right moment, and withdrew a hefty chunk in dollars, and you’ve now discovered that the IRS wants to take a large share. There are a few things you can do to decrease your crypto tax liability. We’re going to run

through six of them here.

1. Engage in Tax Loss Harvesting

If some of your cryptocurrency holdings have decreased in value, then tax loss harvesting – where you sell your reduced-in-value cryptocurrency to realize a loss – can be a great way to decrease your overall tax bill. Tax loss harvesting is nothing shady or unusual: it’s perfectly legal to offset capital gains with capital losses. So if you’re currently hanging onto cryptocurrency that has decreased a lot in value, it’s well worth selling it to offset any gains you made earlier in the tax year (you can also use it to offset up to $3,000 of ordinary income).

2. Invest for the Long Term

As cryptocurrency is generally treated as property by the IRS, the capital gains rate is lower for investments that are held for over a year. So if you purchase cryptocurrency and sell after nine months, your capital gains tax rate will be higher than if you sold it after thirteen months. Obviously, you may still find that the volatility of cryptocurrencies means that you end up with more money in your pocket, even after tax, by selling in the shorter term. It’s worth keeping the reduced long-term capital gains tax in mind, though, when you’re making buying and selling decisions.

3. Give Away Cryptocurrency

Gifts under a certain amount aren’t taxed: currently, you can give away up to $15,000/year. While this might seem like a drastic way to avoid tax, if you want to share your wealth with family and friends, making gifts in cryptocurrency could be a great way to do so. Keep in mind that the recipient will be liable to pay tax if they use, sell or trade the cryptocurrency, though.

4. Buy and Sell Cryptocurrency Via Your IRA or 401-K

By using your retirement account to purchase cryptocurrencies, you can defer paying tax (or even avoid paying it at all): all the income and gains generated by the retirement account will return into the account with tax deferred or (in the case of a Roth IRA), with no tax applied at all. This means your crypto investment can grow and grow without being hindered by you needing to take money out to pay your tax bill. iTrust Capital is a crypto native IRA platform which allows you to invest and trade cryptocurrencies tax free in an IRA account. This is a great option for avoiding taxable events and minimizing your tax liability. You can learn exactly how the platform works here.

<div id="om-eeywu2knpo981nccukze-holder"></div>

5. Hire a Crypto specialized CPA (Certified Public Accountant)

A good Bitcoin Accountant will almost certainly be able to save you money on your taxes (and not just those that arise from cryptocurrency). While hiring an accountant might seem like an expensive step, their fee could pay for itself many times over via a reduced tax bill. Most crypto-investors aren’t tax experts themselves, and it definitely pays to consult someone who is! If you’re not sure what a CPA is or exactly what they do, check out the thorough CPA Exam Guy's FAQs.

6. Leverage Crypto Tax Software

Cryptocurrency tax software like CryptoTrader.Tax can be used to identify how much money you actually owe in taxes. Because you need to identify what the US dollar value was for every trade that you made throughout the year, crunching your gains and losses manually can quickly turn into an impossible task. Crypto tax software automates the entire tax reporting process for cryptocurrency traders. You can then plug your generated reports into filing software like TurboTax or TaxAct for cryptocurrency.

Some of these tips are ones you could put into action today, like tax loss harvesting or hiring a CPA. Others might take a bit longer. The key takeaway here is that there are ways to reduce your crypto tax liability, and it’s simply a case of picking a method or two that suit you.