Minimizing Tax Liabilities on Crypto Gains – Strategies 

In the past decade, cryptocurrencies have gained immense popularity among investors not merely in California but across every state in the U.S. More and more people are getting familiar with cryptocurrency and considering it for potential investment.

Still, at the same time, some people are jumping right in without adequately comprehending numerous aspects of cryptocurrencies, which results in financial losses. Nonetheless, cryptocurrency will remain popular, and people will likely keep investing. That is why people need to comprehend how to minimize tax liabilities on crypto gains.

Cryptocurrency is treated as property for tax purposes, which essentially means that taxes are applied when some trade, sell, or dispose of cryptocurrency. A CPA in Oakland, CA, can be of great help in such tax-related cases because of having vast knowledge and experience.

Strategies to Minimize Tax Liabilities

By applying numerous strategies, people can significantly minimize the tax burden on crypto gains, and we are going to look at some such strategies here.

  • Long-Term vs. Short-Term Capital Gains

A common and pretty straightforward strategy for minimizing tax liabilities is going for long-term investments because, typically, the tax percentage is significantly less compared to short-term investments. It is better to hold cryptocurrency investments for over a year to categorize them into a long-term investment.

Short-term capital gains are taxed under the ordinary income rate, which is about 37 percent in the U.S. Long-term capital gains are taxed under much lower rates, which are typically 0%, 15%, or 20%, depending upon the income level of the person.

  • Harvesting Tax Losses

Tax harvesting is essentially a technique in which people sell investments at a loss to offset gains realized elsewhere. If someone has some crypto investments whose value has decreased, selling such crypto can be utilized to offset capital gains from alternate investments.

In addition to that, up to 3000 dollars of excess loss can be deducted against alternate income types every year. Furthermore, losses can be taken forward to offset any gains in the future, which provides a pretty valuable tool for tax management over time.

  • Utilizing Tax-Advantaged Accounts

Making direct investments in cryptocurrencies through tax-advantaged accounts such as the likes of IRAs is actually limited, but some innovative or work-around solutions do exist. Self-directed IRAs let people invest in a broader range of assets, including cryptocurrencies.

By holding crypto in a self-directed IRA, people can postpone taxes on gain until retirement, or if we take the case of a Roth IRA, people can potentially avoid such taxes altogether if certain conditions are fulfilled.

  • Donating Crypto to Charity

Most people do want to donate to a cause. The donation of appreciated crypto to a qualified charitable organization also turns into a tax-effective way to minimize the overall tax burden. When someone donates crypto, the fair market value is generally deducted, and the person can avoid paying capital gains tax on the appreciation.

The dual benefit actually turns charitable donations into a powerful strategy for crypto tax liabilities management.

  • Gift Crypto to Family Members

Gifting crypto to family members is another great way to minimize taxes, mainly through gifting to people who fall under a lower tax bracket. The annual gift tax exclusion lets people give up to a certain amount per recipient without imposition of any gift taxes.

In 2023, the value of the gift was 15,000 dollars per recipient. If the recipient lies in a lower tax bracket, the tax rate on the capital gains attained after selling will be less compared to someone in a higher tax bracket.

A CPA Can Help in Minimizing Tax Liabilities!

Keeping track of every changing law can be difficult because the laws keep changing quite frequently. With a CPA on board, it turns out to be much less stressful for the person because a CPA can take care of everything related to taxes and make sure the overall tax liability is minimized, eventually.

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