Tax Strategy Reduction for Crypto Holders

Tax Strategy Reduction for Crypto Holders

Even though we do not like it, but our hard-earned cryptocurrencies cannot seem to escape the prying eyes of the IRS. You might have a fantastic crypto deal and have some cool profits in dollars. Sadly, however, the IRS wants a considerable share. This is sad, and as a result, we have some tested ways to reduce your crypto tax liability.  

If you want to reduce the tax bills on your cryptocurrencies, there are strategies you can take. Here are some proven ways that can help you overcome it.

Be a long term Investor

One of the simple ways to reduce your tax on cryptocurrencies is to own it for more than a year because patience is a virtue the IRS rewards. Trading in the short term is not sustainable. Long term is a good strategy when it comes to crypto investment. Remember that capital gain taxes on long term investments are lower than taxes held for a year or less.  

Give Away Cryptocurrency

Some gift amounts cannot be taxed as specified by the law. At the moment, the law permits you to gift away up to $15,000 per year. Although this is a risky way to avoid tax, you could give out to family and friends. Bear in mind, however, that the recipient might have to pay tax on the gift should they sell, trade, or use it.

Tax Loss Harvesting

You can engage in the principle of tax-loss harvesting if some of your cryptos have decreased in value over the years. This can help reduce your overall tax bills. The law allows you to factor in capital losses with capital gains.

With this in mind, if you have crypto whose value has decreases, you can sell it off to checkmate any gain you made in the year.

Use your IRA or 401-K to Sell or Buy Cryptocurrency 

One sneaky way to avoid paying tax (in some cases) or delay it is to buy crypto with your retirement account. Should there be income and other gains on the retirement account, it will return to the account. The tax will not be applied at all in the case of the Roth IRA.

The implication of this is that you can allow your tax to grow without the need to deduct some percentage for tax. 

Capital Losses

Based on the IRS notice, cryptocurrencies can also be classified as a property. It is the most straightforward loss to claim because you will have a deficit should you sell your crypto off at a lower price than the amount you purchased it. With this, you will have a deductible loss with which you can reduce capital gains.

In cases where you have an excess of capital losses than gains, you are permitted to offset your ordinary income by $3,000 per year.

Consult a Crypto Specialist CPA

A Certified Public Accountant or a crypto accountant can help you save money and reduce expenses on your tax. The good news is that not only will it save you on cryptocurrencies, and it will also save you money. Although this seems like an expensive option, it will surely repay itself over the years.  

Since you, as a crypto expert is not very knowledgeable on tax, we recommend hiring the services of a crypto tax expert.

Casualty and Theft Losses

There are some categories of theft and casualty losses like forwarding crypto to the wrong address, hacked wallet, losses, or funds. Section 165 of the IRS code covers the casualty and theft losses

Before 1st Jan 2018, taxpayers could claim a deduction for uncompensated personal casualty losses. This includes losses from fire, theft, shipwreck, or storm. Concerning this, theft losses can only be deducted to the extent they a hundred dollars per tax event. Also, the aggregate net casualty and tax amount accounted only for folks with itemized deductions. This, however, applies only to the extent that they exceed 10% of the person's adjusted gross income. (AGI)

For the tax years of 2018 through to 2025, casualty and theft losses of property assets can be deducted if the injury arises due to a federal casualty loss. As a result of this, funds lost due to stolen or hacked wallet does not enjoy this deductible loss clause. 

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