Do you want to save thousands of dollars when filing for your 2019 taxes this year? A great time to look into saving strategies is the end of December and we’ll explain it the reason why throughout this article. We will share with you a couple of tax-saving strategies that are not only highly effective and quick to implement at year-end but also throughout the year.
Since long-term capital gains are taxed at preferential rates, it might be a good idea if you sell cryptocurrencies you have held for more than 12 months as it may result in absolutely zero taxes in most cases. Your long-term capital gain tax rate will base on the level of your income and status of filing. Your net capital gains may not be subject to any taxes if you fall within 10% or 12%. You will either be subject to a 15% or a 20% flat rate, irrespective of your long-term capital gain size if you fall in higher tax brackets. You may also be subject to an additional 3.8% Net Investment Income tax at a specific level of income in addition to the tax rates of the capital gain.
In general, your ordinary tax rates applicable to short-term capital gains is higher than the total tax you pay on long-term capital gains. Therefore, for anybody irrespective of their filing status or income levels, selling long-term crypto first is a great way to save from taxes.
You will be able to reduce your taxable income by generating tax losses or through tax-loss harvesting. Crypto assets may not be the only assets qualified to use this strategy but it offers a unique advantage that traditional stocks and securities won’t be able to provide.
IRS Notice 2014-21 states that cryptocurrencies are treated as property and all general rules applicable to property should be applied to crypto as well. Wash sales are the one key rule that discourages tax-loss harvesting for stocks. Section 1091 of the IRS code is what governs it. Fortunately, section 1091 was sales rule is not applicable for a property but to “stocks and securities” only. This huge loophole offers a great advantage for investors of crypto.
As Dow sets an all-time high for 2019, this tax planning strategy is absolutely timely. A lot of investors would usually want to cash out their stocks at these prices. If before December 31, 2019, you decide to sell your position, your 2019 tax return will show the resulting gains being taxed as capital gains. But there’s no need to worry - these gains can be offset with your crypto losses. You may want to consider consulting a tax professional for a more thorough explanation and to learn more about this genius tax-saving strategy.
This strategy is perfect for those who like to donate to charities - yes, you read it right, you can also donate your crypto. Donating your crypto is not only a great way to support your community but also helps in saving tax money. You can easily donate your crypto assets to various charities just by looking and clicking at non-profit websites over the internet. You will get a deduction for your donations if you itemize on Schedule A of Form 1040. The holding period of the crypto asset is where the amount of deduction will be based from. The deduction is the fair market value (FMV) at the time of the donation if you happen to donate an asset that you held for more than a year. The deduction is the lesser of FMV or cost basis if you donate an asset that you held for less than a year. The guidance around crypto donations is set pretty clearly by the IRS.
These tax planning strategies are extremely easy to implement before the end of the 2019 year. You also have the option to implement them alone or together. However, you have to remember that your actual tax savings will be on a case to case basis. You can periodically implement these tax-saving strategies during 2020 if you miss implementing them during 2019.
