Roo's All-In Giveaway, $300,000 in Prizes
1.1 k views

5 Ways to Get Rid of Your Crypto Gains Tax Rate

Cryptocurrencies are becoming more important and relevant for both short and long-term investments. As a result, numerous countries worldwide are looking at ways to adapt, regulate, and tax them.

In the United States, the Internal Revenue Service (IRS) classifies crypto assets as property. Bitcoin falls under the same regulation. So, when you sell, trade, or exchange BTC into USD or other cryptos, you have to pay a tax on the profit, if there is one.

If you want to minimize or even eliminate your crypto tax rate, these strategies should come in handy!

1. Benefit from 0% Tax Rates on Donations and Long-Term Capital Income

If you are a US citizen, you may benefit from a 0% tax rate that applies to long-term capital gains.

To be eligible for this tax deduction, you have to provide information about the following:

  • Your filing status
  • Your annual income
  • Asset storage time between purchase and sale

For example, if you are married and your partner files your taxes jointly, you may profit substantially in the crypto trade yearly without paying any taxes. But, of course, the value of your revenue will depend on how much money both of you make and how long you keep those digital assets before selling them.

You can also be eligible for a tax deduction if you donate cryptocurrencies to charity. The main condition is that those assets were in your possession for more than 12 months before the sale. Additionally, you do not have to pay income taxes for your profit if you gain something from donating crypto assets.

2. Use HIFO to Your Advantage

The highest in, first out (HIFO) is an accounting instrument for organizing the inventories of an enterprise. It takes the items with the highest acquisition cost out of stock. Through this method, you can decrease the taxable income of your cryptocurrency portfolio.

You must meet several criteria before using HIFO and calculating the tax deductions on your cryptocurrency operations. Here they are:

  • The exact date and time of purchase for each digital unit
  • The fair market value of each digital unit at the time of its purchase
  • The exact date and time of sale, exchange, or trade for each digital unit
  • The fair market value of each digital unit at the time of its sale, exchange, or trade
  • The capital or value received for each digital unit sold, exchanged or traded.

You can’t scribble these calculations on a napkin. Instead, you or your accountant must use a high-performance computer that keeps the electronic records according to each criterion.

HIFO is an excellent accounting tool for maximizing your gains while paying as small taxes as possible. Fortunately, this method extends to cryptocurrencies and other digital assets, so ensure that you always aim to sell or trade the ones you have paid the higher price per unit.

3. Harvest Tax Losses on Crypto Trades

We mentioned before that US law considers cryptocurrency property, not stocks or securities. Therefore, they are not taxable under wash-sale rules.

The wash-sale rule states that buyers can eliminate tax loss if they purchase the same security, stock, or option to buy it or a “substantially identical” security within one month before and after the date they sold the investment that generated the loss in the first place.

Instead, trading cryptocurrencies enable you to harvest tax losses, increase your savings, and enhance your investment portfolio.

If you wish to use this method, you can sell the crypto assets that “bleed” in your portfolio. Next, you harvest losses for tax purposes and immediately return to the same position without waiting 30 days. You can then use these harvested losses to balance your cryptocurrency profit and capital gains.

4. Use Your Self-Directed IRA (SDIRA) for Crypto Operations

Reducing the cryptocurrency tax rate is not a way to avoid taxes completely. Instead, it helps you delay taxes on your crypto trades while increasing the savings in your Self-Directed Individual Retirement Account (SDIRA).

If you do not have an SDIRA, you might want to consider one at least as a crutch for your crypto investments.

You can use SDIRA to trade cryptocurrencies through it and increase your crypto revenue without paying taxes on it today. The tax money remains in your SDIRA account, and you can roll it to increase your overall return in the long run.

When you retire, you will eventually have to pay taxes for your crypto operations. However, by that time, you will be subject to a lower tax rate, and your crypto profits should have a substantial margin on the tax money you send to the IRS.

5. Use a Quality Opportunity Fund (QOF)

If you are one of the select few high-net-worth taxpayers and you have a substantial annual profit from crypto trades, this method will suit you perfectly.

All you need to do is roll your long-term crypto profits into a Qualified Opportunity Fund (QOF). This investment vehicle is specifically programmed to help you invest in “opportunity zones.”

Opportunity zones are particular geographic regions declared by the government as economically afflicted. Investing in these areas qualifies you for significant tax reductions on capital gains.

This strategy should help you eliminate your crypto tax rate in the long run. You can avoid capital gains taxes on your crypto trades entirely if you hold your investment in a Qualified Opportunity Fund for ten years or more. Even if you hold for five years, you will not have to pay taxes on 10% of your initial crypto tax profit.

So, there you have it! These are just five legal and convenient ways to reduce your crypto tax and, in some cases, even eliminate it.

Bitcoin live price
price change

Disclaimer: This is an informational article that does not represent professional tax advice. To better manage your taxes on cryptocurrency and other digital assets, we recommend consulting with a certified public accountant (CPA).

Stay up to date with our latest articles

More posts

Why SolidProof Stands Out in the Blockchain Security Landscape

SolidProof - a registered security company from Germany - has announced the imminent release of an updated version of its SolidProof Automated Audit Tool (SAAT). This unique blockchain industry product supports decentralized finance (DeFi) growth, enabling projects to minimize security threats. An upgraded SolidProof App is also ready to roll out with new and exciting features, cementing SolidProof’s place in the top tier of blockchain security providers. Increased Challenges for DeFi Security Decentralized finance has evolved on top of blockchain…

Top 5 Crypto Gaming Tokens to Buy for the Next Bull Run

Crypto gaming is one of the fastest-developing sectors of the blockchain industry. In 2023, it is estimated at $7.89 billion and is forecasted to reach over $300 billion by 2030. Some see it as the next ship to onboard for lucrative long-term investments. And after a closer look at it, we can easily understand why. The strength of the crypto gaming market lies at the crossroads of several technological advances, including blockchain, cryptocurrencies, and the Metaverse. Including new economic models,…

Top 3 Crypto Casinos in 2023

Playing at crypto casinos is a widespread practice in 2023. These online platforms feature all the classic casino games, like poker, Roulette, and Blackjack, besides modern interactive slots and sports betting. Players worldwide can make crypto deposits in Bitcoin, Ethereum, and other popular cryptocurrencies for the chance to win substantial jackpots, bonuses, and rewards. If you are wondering how to choose a crypto casino, you have come to the right place. We selected three of the top crypto casinos this…

Using Open-Source Protocols for Developing Scalable Solutions on Blockchain

Blockchain technology's safe, transparent, and decentralized transaction platform might transform several sectors. However, building scalable blockchain solutions can be a challenging task.  This short guide will explore how to leverage open-source protocols to develop scalable blockchain solutions. The article aims to make it easier for developers to plan the realization of robust and secure blockchain applications.  Understanding Open-Source Protocols Open-source protocols, such as Ethereum and Hyperledger Fabric, come from organizations and are available for anyone to code for free. Unlike…

How to Leverage Arbitrage Opportunities in Crypto Markets

Cryptocurrency arbitrage has become an increasingly popular investment strategy as the crypto market grows and evolves. Arbitrage involves taking advantage of pricing discrepancies between markets or exchanges to profit.  Investors can leverage profit opportunities by understanding cryptocurrency arbitrage while managing associated risks. In this guide, we'll explore cryptocurrency arbitrage and how it works. A Bitcoin-related example will help us illustrate the concepts of this strategy. What is Arbitrage and How Does it Work in Crypto Markets Crypto arbitrage trading is…

The Different Types of Copy Trading in Crypto

Are you interested in trading cryptocurrencies but feel intimidated by the complexity of the process? Copy trading is a great way to get into crypto without needing to be an experienced trader. With copy trading, investors can benefit from the experience and knowledge of more experienced traders, allowing even beginners to succeed. How does copy trading work, and which tips do you need to know to succeed? In this article, we'll explore all aspects of copy trading in crypto. What…

How to Spot an Unsafe Crypto Exchange

Cryptocurrency exchanges have become increasingly popular as they provide a platform for people to buy and sell digital assets. Unfortunately, not all crypto exchanges are safe or reliable.  With the rise of cybercrime and fraud, you must learn to spot an unsafe crypto exchange before investing your money. This guide will help beginners identify and avoid potential risks when selecting a cryptocurrency exchange.  The Role of Crypto Exchanges on the Digital Assets Market Cryptocurrency exchanges play a crucial role in…

A Guide to the Impact of US Fed’s Interest Rates on Crypto

The US Federal Reserve's interest rate is one of the world's most influential economic indicators. These rates profoundly affect global markets and investments.  But what impact does this have on cryptocurrencies? Today, we’ll explore how Fed interest rate changes affect crypto prices and why traders need to pay attention to them. We will also discuss how quickly these rates are increasing and what this means for cryptocurrency investors.  Observing the connection between US Fed rates and crypto assets allows you…

Unveiling the ERC-4337 Account Abstraction Standard – What You Should Know

The Ethereum blockchain is always changing and adding new features to make it easier to use. One of the latest developments is the introduction of ERC-4337. This account abstraction standard promises to revolutionize how users interact with Ethereum. This guide will tell you about ERC-4337. We'll explain what it is, how it works, and the good and bad things about it. We'll also talk about why you should use this new standard for smart contracts. By the end of this…

What Is Grid Trading in Crypto?

Crypto grid trading has become a popular strategy because of its ability to help traders capitalize on market volatility. Grid trading means you can produce consistent profits by taking advantage of price differences in different markets or time frames. By establishing buy and sell orders at predetermined intervals, you can take advantage of these fluctuations in an automated way. This guide will explore the different aspects of grid trading and provide an overview of its benefits, challenges, and more. Through…