• 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. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

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