Here are multiple ways to minimize your cryptocurrency taxes
|- As cryptocurrency adoption around the world increases, so does regulations.
- Crypto users are searching for ways to eliminate or minimize their taxes.
Despite cryptocurrencies being decentralized, users still need to pay taxes. There are several ways people can reduce their taxes, and the best thing about it is that it’s completely legal.
Several tips to reduce crypto taxes for 2020
If you are a long-term trader or holder, you should definitely take advantage of the 0% long-term Capital Gain Tax Rate. It is possible to pay no taxes on your cryptocurrency holdings but it depends on your annual income and how long you kept them before selling. This tax rate is not very well known but can be a tremendous tool for ‘Hodlers’.
Of course, donating crypto assets to charities is also a great tool to get a tax deduction. You need to hold your cryptocurrencies for at least 12 months before donating them to get a tax deduction equivalent to the fair market value of the asset.
One of the most popular methods to reduce taxes in the normal market is the Highest-In-First-Out model. The idea here is to minimize your capital gains and taxes. You can use one of the many cryptocurrency tax softwares out there to calculate all the necessary numbers to utilize this method.
The US government has created a set of tax incentives to invest in economically afflicted areas. You can put your long-term cryptocurrency profits into a Qualified Opportunity Fund (QOF) which will invest the money into those areas and will eliminate your taxes by 10% if you hold your money in there for at least five years. Additionally, if you hold it for longer than 10 years, you can completely avoid capital gains taxes.
Finally, you can simply move to a state or country with no taxes on crypto. Of course, this is not the easiest method but can be highly beneficial if you owe a lot. There are plenty of states with no income taxes. Similarly, many countries have this benefit and don’t tax Bitcoin gains, like Belarus, Malta, and others.
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