How To Reduce Crypto Tax Bill With 7 Simple Strategies

Trading cryptocurrencies has become a popular way to earn money. But every transaction is subject to the Internal Revenue Service — (IRS) taxation. A savvy crypto user always tries to minimize taxes when transacting in cryptocurrency. It’s a relatively high tax, and users need to reduce or avoid it. Knowing how to minimize cryptocurrency taxes payable to the IRS would be ideal.

Since bitcoins and other cryptocurrencies are properties as per IRS Notice 2014-21, every time you exchange, sell, or trade tokens, it is a taxable event. If you make a gain, you are liable for taxes. So, how can you reduce these tax bills? You can use this post’s seven tax strategies to eliminate or minimize your crypto tax bill.

Making Charitable Donation With Crypto Assets

Those donating crypto assets to qualified charities can receive crypto tax deductions. Whenever they donate crypto assets to a charity over‌ 12 months, they will receive a tax deduction based on the fair market asset value at the time of donation. In addition, they will not tax you on the capital gains.

For instance, let’s say Mary donates one bitcoin (BTC) to a charity. Five years ago, she bought it for $1,000. It now has a value of $10,000. As a result, Mary will receive a charitable deduction of $10,000 and bypass capital gains taxes on $9,000 worth of revenue ($10,000 – $1,000). If Mary sold one bitcoin and donated the proceeds in fiat, the $9,000 profit would be subject to capital gains taxes.

Testing the Identification Method

With the Specific Identification Method — SIM, a cost calculation method for cryptos, you can implement the HIFO method. It’s easy to calculate losses and gains. You can get time and data from it. It helps calculate the market price.

Knowing how much money you will receive when you sell an asset is crucial. It is important to use four types of records. You will enjoy high prices for commodities when you choose Highest In First Out (HIFO) for tax-related matters. Gains on such entities will be tax-free or low.

Selling Assets in Low-Income Years

It doesn’t matter whether your capital gains are long-term or short-term. Your income determines your tax rate. You will pay lower taxes if your taxable income is lower. When you sell cryptocurrency, ‌you know it will generate gains in years when they pay lower rates, and you can save on taxes.

There may be a higher tax rate on some cryptocurrency income after you sell it. But that doesn’t mean that the IRS taxes all of your income at that rate, as many believe.

Trading Crypto In A Self-Directed IRA (SDIRA)

A Self-Directed IRA (SDIRA) is another excellent tool for investing in crypto and deferring taxes until retirement. Even though avoiding taxes is impossible, an SDIRA offers the most significant benefit of compounding crypto profits without paying taxes today.

Paying no taxes on trades today allows you to combine profits, which, if traded in a non-SDIRA account, would have gone to the government. It could significantly increase your long-term returns.

Tax Loss Harvesting

With Tax Loss Harvesting, you can make a loss on an asset and repurchase it at a lower price. By doing this, you can realize capital gains today while deferring capital losses indefinitely.Wash sale rules prevent the extraction of tax losses from “stocks and securities” within 30 days after the purchase or sale of the asset.

However, bitcoin is subject to loopholes because it is property, not stock or security. By doing this, you can sell losing positions for tax, then quickly get back into the same place without waiting 30 days. These harvested losses can offset capital gains from crypto trading.

Holding On To Your Crypto

Holding onto your crypto for more than a year directly lowers or potentially eliminates your tax burden. Capital gains tax on short-term investments levies on assets owned for less than 12 months, with the highest tax rate between 10% and 37%, depending on your annual income.

However, if you sold, spent, or otherwise disposed of your crypto after holding it for more than a year, you would have to pay long-term capital gains tax. Based on your income, capital gains tax rates are lower for long-term gains than short-term gains and ‌range from 0% to 20%.

Taxers who make less than a certain amount and keep their crypto investments for a year or longer will pay no taxes. Cryptocurrency prices ‌fluctuate a lot. Rather than waiting and incurring long-term capital gains tax, you may do better selling the property sooner.

Considering Long Term 0% Capital Gain Tax Rate

The US tax code has a 0% capital gains rate for the long term. However, eligibility depends on several factors. It includes your annual income, filing status, and the time you held the digital currency before selling it.

Regardless of your marital status, it would help if you focused on filing. The situation may allow you to pay less tax on cryptocurrencies you own. You can create a file listing a single person’s income, a couple, or an entire family.


Crypto owners are tired of paying taxes on their digital currencies. The tax applies regardless of how much a sender sends to a receiver. Whenever you face such challenges, follow all the strategies mentioned.