Crypto trading has proved massively rewarding for you, but now you are worried about the tax bills, aren’t you?

At the same time, if you, by chance, do not pay taxes, there will be severe repercussions. Now, while there is no way you can avoid paying crypto tax, there are some ways you can at least resort to (in compliance with all the legal norms) and save on crypto taxes.

Here are the nine brilliant ways that can be of great use to you.

Opt for long-term investments

The taxes are usually less when you have clung to your cryptocurrency investments for at least 12 months. Now look at the advantage of holding on to cryptos; you must pay 0 to 20 per cent capital gains tax on long-term properties, while on short-term ones, the capital gains tax is usually drastically higher, i.e., at least 10 to 37 per cent.

But, there is a tiny problem here; the volatility of crypto assets is much higher, so holding on to those for a long time can be a little risky. But if you can predict the price movement, you can make an educated decision.

Gift cryptocurrencies

Tax benefits will come your way when you gift away cryptocurrencies. It might seem like a radical move, but there are specific benefits for you to understand.

However, if the gifting value exceeds US$15,000, you must pay a nominal gift tax. Gifting crypto is a little unorthodox, but this could be a great way to distribute wealth among family members and friends you trust. The best part is the recipient is also eligible to receive tax benefits along with you. When A gifts crypto gifts to B, B’s crypto income will not fall in the taxable event category.

However, the recipient must keep an eye on the fall and rise in the price of the crypto gifts because any fluctuations must be reported precisely if the recipient decides to sell it in the future.

Tax-loss harvesting

The practice of tax-loss harvesting involves deliberately selling off your cryptocurrency assets at a loss to save on taxes. If you find that some of your cryptocurrency investments have depreciated in value, tax-loss harvesting can be a smart move to reduce your tax bills on cryptocurrencies.

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In fact, this method can bring advantages in the case of cryptocurrencies, which do not apply to any other asset classes. For instance, the “wash sale rule” that applies to stock investments does not apply to cryptocurrencies. So if you find that your bitcoin or rose coin price has dipped, you can sell them off at a loss and buy back tokens.

Use your IRA or 401-K to make crypto purchases or sell them

If you have a retirement account, use it to the fullest to earn tax-free wealth. However, note that you cannot withdraw any part of your savings until you reach a specific age. Roth IRA holders can experience tax benefits.

For instance, if A decides to sell his capital assets accumulated in his Roth IRA, he doesn’t have to pay capital gains tax until he withdraws whatever he earned. Many IRAs allow crypto investments like Bitcoin IRA, Coin IRA, and more.

Draw your profits during low-income periods

You must already be aware that the amount of taxes you pay depends on your income range during that year. So you can withdraw from the crypto market with gains in such a year when your personal earnings are low.

It can make a significant difference in the amount of tax you have to pay in such circumstances; the rate of tax levied when you sell cryptocurrency after a year is 0 per cent for taxpayers whose income is less than US$40,000.

Offer donations in crypto

In case you did not know, donations through cryptocurrencies do not invite any taxes, so this can be a wonderful way of contributing to meaningful causes that you believe in. When you donate cryptos after a year of holding them as investments, they can be withdrawn depending on the fair market price when you plan to donate them.

Moreover, in such cases, the IRS also permits cryptocurrency investors to opt for “double dipping” on their tax benefits.

Relocate to a low-tax state

As incredible as it may sound, there are crypto investors who choose to shift base to a different state with lower tax rates in the USA. States like Florida, Texas, Washington, and South Dakota are income tax-free.

Also Read: How this cutting-edge technology helps fortify your crypto security

Some investors have also been as drastic as relocating to a different country searching for lower tax rates! Countries such as Portugal and El Salvador have tax-free policies for crypto investments.

Apply for a cryptocurrency loan

Many of us might not know this, but procuring a loan in cryptocurrency is not taxable, unlike selling cryptos. Well, as of now, the IRS is yet to publish specific regulatory guidelines on DeFi loans.

So if you want to save more on your crypto gains taxes, you can apply for a loan using your cryptos as collateral. And based on the rate of interest and your individual income group, you might be able to save more on taxes by taking out a loan.

Hire a CPA with expertise in cryptocurrencies

You might consider seeking professional help from a Certified Public Accountant to help you navigate your cryptocurrency tax bills. An experienced CPA can easily help you devise strategies that slash your crypto taxes. It might be expensive, but it will be worth it in the end.

Final thoughts

These are some of the smartest options to help you save more on your crypto taxes and lessen your liability. However, the best step ahead is to consult with an experienced tax professional to clearly understand the associated legal complexities and then formulate suitable strategies.

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