How to Lower Your Crypto Taxes

How do crypto taxes work?

The IRS considers cryptocurrencies like Bitcoin and Ethereum to be property. Other examples of properties include real estate or equities. Just like real estate, crypto is subject to two forms of taxes: capital gains and income.

Capital gains taxes take effect whenever you sell your property. This is called a “disposal event.” In the case of crypto, disposal events take the form of selling your crypto for fiat (i.e. USD), trading your crypto for others (i.e. Bitcoin for Monero), and buying goods or services with crypto.

Because cryptocurrencies can appreciate or depreciate in value as you hold them, capital gains taxes are implemented a little differently. If your tokens increase in value since you originally bought them, the amount which you pay varies depending on if you hold them for less than a year or more than one. If you hold onto your crypto for less than a year, you pay more in capital gains tax than you would have if you hold them for a year.

Income taxes are multifaceted. Since you can earn income in the form of cryptocurrency, you will need to pay income tax. The points where you're taxed for income are called “income events.” Income events can include staking or mining rewards or getting compensated for your labor in crypto rather than fiat. Even earning referral bonuses from crypto apps, which is more and more common, is considered an income event.

Lower crypto taxes with Crypto Loss Harvesting

Crypto loss harvesting utilizes the bane of every trader’s existence: loss. That is, assets which have lost their value. If you are an active crypto trader, it’s likely that you have hundreds if not thousands of unrealized capital gains. You invested in a cryptocurrency which you thought was bound to skyrocket like Ethereum or Monero, only to find that it went in the completely wrong direction.

What crypto loss harvesting does is offset the gains you made from successful crypto picks. This decreases the amount that the IRS will tax you for. You can learn more in our previous article, here.

Lower crypto taxes with a Charitable Remainder Trust

The CRT is a specialized trust recognized by the IRS, which lowers crypto taxes to a point that they’re almost negligible. It allows you to donate large sums to charities, while providing you and your heirs with larger tax breaks. These trusts are meant to be long-term dedications which can last up to and over 30 years. In addition, CRTs are irrevocable.

This means that, once you set one up, you cannot change your mind. What’s done is done. This is why speaking with a tax professional is so important. You’ll see even more reasons as we explain our step-by-step process on paying zero crypto taxes in this article.

Once you have read the step-by-step guide, you might wonder what you should do next. Things become a little less concrete, unfortunately. Because the amount of capital gains you earn on your crypto, the years your CRT functions, and the amount of tax deductions you can expect vary, it’s very difficult to give exact numbers.

However, we do know one thing: you need to set up an annuity.

An annuity is a contract which requires scheduled payments for a year or more. That money is entitled to a single person, who is called the annuitant.

A tax professional can walk you through how to set up an annuity, but ideally you will set it up to pay out at 8%. Once you title yourself as the annuitant, you will be entitled to that 8% payout every single year. For the rest of your life, you will receive 8%.

Lower crypto taxes with your IRA

Retirement accounts, which are designed from the ground up to provide investors with tax benefits, are a great way to lower crypto taxes. If you decide to sell your assets in an IRA, you are not required to pay taxes on them until you withdraw your earnings.

Although many IRA providers don’t allow investors to invest in crypto, you can store your retirement savings in your own self-directed IRA. A self-directed IRA is run by you, and you can use it to invest in cryptocurrencies, precious metals, real estate, and more. Those under the age of 50 are able to contribute up to $6,000 a year in total to all IRAs.



IRAs which are popular with cryptocurrency enthusiasts include Bitcoin IRA and iTrust Capital.

No matter how you choose to lower crypto taxes on your portfolio, it is best to connect with a tax professional to make sure that everything is done correctly. Let Yoke Tax handle the numbers while you reap the benefits.