Avoid Crypto Taxes: Keeping Your Profits – Legally

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The IRS classifies cryptocurrency as a regular asset, just like any other form of property. The government penalizes this asset with a hefty tax, either as a regular paycheck, like income or as a substantial capital gain. This means that if you sell it and make a profit, you will normally have to pay taxes on the profit. When it comes to investing, there are a few techniques you can use to help lower your tax bill.

However, before we get started with tax reduction strategies, let’s take a look at the fundamentals of how crypto gets taxed.

Crypto Tax Treatment

  1. Capital Gains

    If you sell your cryptocurrency and make a profit from it, it counts as a capital gain. Depending on the kind of capital gain you’ve earned, you’ll have to shell out capital gains taxes. Capital gains are classified into two options: short-term and long-term. The amount of time you keep your asset will determine which type of gain you experience.

  2. Ordinary Income

    When you expand your wealth through diligent labour or by selling non-investment assets, the Internal Revenue Service considers that as a taxable gain. This is what you call ordinary income. This is also true for cryptocurrency. When you get cryptocurrencies as payment for labour or in return for goods and services, you experience an ordinary loss or gain. When you receive crypto in return for products or services, you must assess the cryptocurrency’s market value at the moment of reception. This is your taxable income.

How Can You Avoid Crypto Taxes?

  1. Hire an Expert

    Hiring an expert can be an effective way to help you navigate the complex world of cryptocurrency taxation. A qualified accountant or tax professional with experience in cryptocurrency taxation will be able to help you understand your obligations and come up with a plan to minimize your tax burden.

    One thing to keep in mind is that different countries have different rules for cryptocurrency taxation, so it’s important to find an expert who is familiar with the laws and jurisdiction. An expert can also help you keep accurate records of your cryptocurrency transactions which can be crucial while filing your tax returns.

    If you are interested in hiring an expert to help with your cryptocurrency taxes, it’s important to do your research and choose someone who has the necessary qualifications and experience.

    Another option is to consider using a cryptocurrency tax software or service. These platforms can help you track your cryptocurrency transactions, and generate tax reports, making it easier for you to file and save on your taxes. Just be sure that you choose a platform that is backed by a team of qualified professionals.

    Don’t wait, take control of life and simplify the taxing process today with our crypto tax software! Our reliable platform lets you access all necessary information and resources to make filing taxes stress-free. Use it now to make tax season easy because time is ticking away!

  2. Hold

    Holding your cryptocurrency for a long period of time, also known as “HODLing”, can potentially help you avoid paying taxes on your cryptocurrency gains. In many countries, capital gains tax is only triggered when you sell or dispose of your cryptocurrency. If you can convert your short-term gains into long-term gains you will definitely pay a reduced amount in your taxes.

  3. Liquidity Management

    If you receive cryptocurrency in exchange for goods and services, the value of the cryptocurrency at the time you receive it will be considered as taxable income. However, you may be able to reduce your tax liability by carefully managing when you receive these assets.

    For example: if you can negotiate with your clients to send cryptocurrency when the price is low, you may be able to reduce the amount of taxable income. This can be particularly useful if you expect the price of the cryptocurrency to increase in the future, as you will be taxed on the lower value based on the time you receive it.

  4. Tax Loss Harvesting

    One strategy that can help you to reduce your tax liability on cryptocurrency transactions is tax loss harvesting. This strategy involves realizing a capital loss on one or more cryptocurrency transactions in order to offset capital gains that you have realized on other transactions.

    For example, let’s say that you purchased 1 bitcoin for $10,000 and later sold it for $20,000, realizing a capital gain of $10,000. If you also had a capital loss of $10,000 from selling another cryptocurrency at a loss, you could use capital loss to offset your capital gain, resulting in no net capital loss or gain for tax purposes.

    While stocks are subject to the wash sale rule, this rule currently doesn’t apply to cryptocurrency making it easier for the users to save taxes.

  5. Loans

    Taking out a cryptocurrency loan might be a way to access the value of your cryptocurrency holdings without triggering a taxable event. As per the United States tax law, a taxable event occurs when you dispose of an asset in a way that results in a realization of a capital gain or a loss. This can include selling your crypto assets for cash, using them in exchange for some goods or services or exchanging it with some other property.

    However, borrowing against your cryptocurrency without disposing it off, may not be considered a taxable event. This means that if you take out a loan using your cryptocurrency as a collateral you may not have to report the loan proceeds as income on your tax returns.

  6. IRA or Pension Schemes

    If you’re looking for ways to avoid the hefty taxes that come with your cryptocurrency earnings, investing in an IRA (Individual Retirement Account) or pension scheme is a great option. IRAs and pension schemes are both tax-advantaged accounts, meaning you won’t have to pay any income tax on your crypto profits until you make withdrawals from these accounts. The longer you keep your funds in these accounts, the more tax savings you can realize over time.

  7. Charity

    It can be daunting to figure out how to navigate the crypto tax maze, but one of the most overlooked strategies for avoiding crypto taxes is donating some of it directly to the charity.

    There are several benefits to this strategy. Donating part of your profits gives back in a meaningful way while helping you avoid paying hefty crypto taxes. Not only that, but donations are often tax deductible as well! If you want to reduce your taxable income, donating cryptocurrency can help offset your tax burden and even lead to financial rewards in the future. Furthermore, many charitable organizations accept cryptocurrency as a form of donation now – so there’s no need for complicated conversions or additional paperwork.

  8. Gifting

    Gifting cryptocurrency to your friends and family is another important strategy to avoid crypto taxes legally. You’re allowed to distribute up to $15,000 in gifts per person annually without having to lodge any gift tax returns or paying any taxes. Even if you go beyond the $15,000 threshold, you won’t need to shell out money for gift taxes unless you’ve completely exhausted your $11.7 million lifetime estate exemption.

  9. Geographical Benefits

    There are many ways to avoid paying crypto taxes, one of which is to move to a low-tax state or country. With the rise in popularity of cryptocurrency investing, more and more people are looking for ways to minimize their tax burden on these investments. Moving out of your home country is an option that can help you save a significant amount on taxes.

    In some countries, there may be no regulations in place regarding cryptocurrencies – meaning that you won’t have to pay any taxes at all.

    Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming currently do not have income taxes. In addition, El Salvador has declared that all Bitcoin profits will be exempt from taxation.

Start Managing Your Crypto Taxes Today:

Get in touch with Mesha now and take the hassle out of crypto tax paperwork. Enjoy peace of mind as we ensure you’ll be able to maximize your crypto gains with accurate and secure calculations. With our easy-to-use platform and dedicated customer service, you can rest assured that your taxes are taken care of!

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