Cryptocurrency tax bills are relatively new in the grand scheme of things. While many businesses will be trying to get their head around how it works, the savvier companies will already be figuring out ways to save money on their final total. The IRS can be such a pain, which is why I’m going to help you make a saving.
Today, we’re going to go through and explore some of the key ways you can save money on your crypto tax bill, allowing you to save money, further invest in your business, and overall decrease your crypto tax liability.
Gift Your Cryptocurrency
The law states you can give away up to $15,000 a year in gifts and you won’t have to pay tax on this sum of money, so gift away your cryptocurrency if you want to avoid paying tax on it. This is ideal if you want to share your cryptocurrency earnings with friends and family.
However, you’ll want to be bear in mind that the recipient of your cryptocurrency gift may be liable to pay tax on the gift they receive, depending on their personal situation, so bear this in mind.
Tax Loss Harvesting Processes
If you find that the cryptocurrencies that you’re invested in and using have decreased in value since getting them, then tax loss harvesting is a great way to save money. Basically, you’re selling your cryptocurrencies in the reduced value or at least stating that the value has dropped and you’re at a loss, reporting this, and then you simply pay less value on your tax bill.
Focus on Long-Term Investments
In the eyes of the IRS, cryptocurrency is treated as ‘property’, which means that you can benefit from the reduced capital gains rate which states that the tax paid on investments is lower when you’ve held them for over a year. This means if you have cryptocurrencies that are over a year old, the tax rate is lower.
This also means if you own a cryptocurrency for say eight months and sell it, then the capital gains tax rate will be much higher than if you sold it at fourteen months. Obviously, with the value of cryptocurrencies changing all the time, that doesn’t mean that selling within this time frames will be the most profitable choice, but it’s well worth considering.
Look at 0% Long-Term Capital Gain Tax
If you’re based in the US, then you can fully take advantage of the long-term capital gains tax rate which sits at the juicy 0% mark that’s specifically for cryptocurrencies. There are plenty of criteria to think about however, including the filing status for your tax, the annual income you may, and how long you keep your cryptocurrencies before you sell them on.
If you’re single or married and filing your tax separately and your income is up to $40,000 per year, then you can enjoy the 0% tax rate. This increases to $53,600 if you’re head of a household, or $80,000 if you’re married and filing your tax together.
Take Advantage of Opportunity Zones
If you’re sitting on a rather large amount of cryptocurrency that is relatively unrealized, you could take advantage of the opportunity zones strategy for saving money on your tax. However, this only really works if you have a high-net-worth.
There are three main types of tax savings; tax reduction, tax deferral, and tax elimination. All you need to do is roll over any long -term crypto profits you make and put them into a Qualified Opportunity Fund, also known as a QOF. This money is then used by the government in certain areas for around five years.
If kept in here for this amount of time, you’ll be able to get 10% of the money back tax-free. If you can keep it in for seven years, you’ll get an extra 5% tax-free on top of this, so it’s well worth checking out.
What’s more, if you hold your QOF for ten years, you’ll get additional savings at both the five and seven-year marks, and you can completely eliminate your taxes altogether, making this one of the biggest and most lucrative ways to save money on your tax.
Katherine Rundell is a cryptocurrency and finance writer at Best essay writing services and Boom essays review services. She writes about crypto and tries to find the most up and coming cryptocurrencies she can. Also, Katherine is a blogger at Student Writing Services.