How to Minimise Crypto Taxes
Capital gains tax is applied when you sell cryptos for more than you paid for them. Here are 5 tips to minimize your crypto tax.
What is capital gains tax on crypto?
You pay capital gains tax when you sell cryptos for more than you paid for them.
How can I minimise my capital gains?
1. Make sure your cryptocurrency investment is long term
The US government encourages long term investment by fixing a lower capital gains tax rate for investments held for more than a year, compared to investments held for less than a year.
2. Set aside money in dollars (and not in another cryptocurrency)
When you profit on the sale of a cryptocurrency, determine how much money to set aside in dollars. This depends on two things: how long you owned the cryptocurrency for, and your tax bracket. If you owned it for more than one year, then you pay a lesser percentage of long-term capital-gains taxes and vice-versa. Don’t convert from one cryptocurrency to another if you make a huge profit on the initial cryptocurrency investment.
3. Record your crypto transactions
Keeping detailed records of every crypto transaction ensures you will end up paying the correct amount of taxation. Log data you need, including the date you bought the crypto, the dollar value, the date sold, and the proceeds from the sale. You need all of this data to properly calculate your cost basis and to report your gains.
4. Work with a tax professional
If you have a complex situation, using a crypto tax accountant can save you money. A professional will know specific tax rules and exceptions.
5. Gift or donate cryptocurrency and pay zero taxes
Gifting cryptos is the same as gifting stocks: The value of the gift is the fair market value when the cryptocurrency has been gifted.