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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.

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.

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.

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.

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.

This is a guest post by Bryce Welker, a CPA and tax professional specializing in the cryptocurrency space.

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