Crypto Investing Tips: The Cryptocurrency Tax Tips You Need to Know In 2022
2022-03-14 12:05:31
What Is Bitcoin Price In USD Taxes?
Do you own cryptocurrency now? Maybe you bought Bitcoin a few years ago when it was just $100, but have now reaped far more value than you ever expected. Or maybe you learned about cryptocurrencies later and bought Ether as a short-term investment to quickly trade and resell. No matter what kind of investment you are involved in, cryptocurrencies now not only have fees when you trade them but also have taxes if you use them in the United States.
How The Crypto Tax Works?
The IRS classifies cryptocurrency as a type of property and not a currency. So when you are using a cryptocurrency such as Bitcoin to make a payment, you have to pay taxes on it. In the case of selling cryptocurrencies for profit, you are taxed on the difference between the purchase price and the proceeds of the sale.
Brian Harris, a tax attorney with Fogarty Mueller Harris, PLLC in Tampa, Florida, says buying and selling cryptocurrencies can have some of the same tax consequences as more traditional assets, such as real estate or stocks.
How to Minimize Crypto Taxes
Reducing taxes on cryptocurrencies and increasing the return on your investment is something everyone wants. Here are 3 ways to reduce taxes on cryptocurrencies.
1. Long-Term Cryptocurrency Holdings
If you hold a crypto investment for more than a year before selling, the gain qualifies for a favorable long-term capital gains rate. Depending on your taxable income for the year, this can almost cut your tax rate in half, from a top rate of 37% on short-term gains to a top rate of only 20% on long-term gains. The long-term holding of cryptocurrencies requires a high demand for an exchange that needs to be secure and stable, such as Gate.io, one of the top 10 global digital currency exchanges in the world.
2. Offsetting Gains with Losses
As with any investment, you can take advantage of crypto gains by claiming losses on other investments in the year that you realize profits. This means that if you make $10,000 from the sale of Bitcoin price live, but lose $10,000 from the sale of Ether, you will owe no taxes since you broke even.
However, these losses are not limited to other forms of cryptocurrencies. If you are about to cash out a large crypto investment, look at the rest of your portfolio to see if you can sell other loss-making investments to offset your gains. If you end up losing much more than a year's worth of gains, you can deduct up to $3,000 of excess losses from your personal income taxes and carry forward any unused losses to offset your future investment gains.
3. Donate to Charity
If you do not need all of the profits from your crypto investments, you can reduce your tax burden by donating at least some of your cryptocurrency to charity. You will receive a deduction equal to the full value of your cryptocurrency, including any gains. However, this usually only makes sense if you are already planning to donate to charity.
Do you own cryptocurrency now? Maybe you bought Bitcoin a few years ago when it was just $100, but have now reaped far more value than you ever expected. Or maybe you learned about cryptocurrencies later and bought Ether as a short-term investment to quickly trade and resell. No matter what kind of investment you are involved in, cryptocurrencies now not only have fees when you trade them but also have taxes if you use them in the United States.
How The Crypto Tax Works?
The IRS classifies cryptocurrency as a type of property and not a currency. So when you are using a cryptocurrency such as Bitcoin to make a payment, you have to pay taxes on it. In the case of selling cryptocurrencies for profit, you are taxed on the difference between the purchase price and the proceeds of the sale.
- However, there are many different tax scenarios depending on how long you have been buying and trading cryptocurrencies.
- Cryptocurrencies held for less than a year have their profits taxed at the short-term capital gains rate, which is the regular income tax.
- Cryptocurrencies held for longer than a year receive a long-term capital gains rate that is lower than most income taxes, depending on the taxable income from the transaction.
- If the value of your cryptocurrency investment falls when you sell it, you can claim a capital loss, which can then be used to offset other income taxes.
Brian Harris, a tax attorney with Fogarty Mueller Harris, PLLC in Tampa, Florida, says buying and selling cryptocurrencies can have some of the same tax consequences as more traditional assets, such as real estate or stocks.
How to Minimize Crypto Taxes
Reducing taxes on cryptocurrencies and increasing the return on your investment is something everyone wants. Here are 3 ways to reduce taxes on cryptocurrencies.
1. Long-Term Cryptocurrency Holdings
If you hold a crypto investment for more than a year before selling, the gain qualifies for a favorable long-term capital gains rate. Depending on your taxable income for the year, this can almost cut your tax rate in half, from a top rate of 37% on short-term gains to a top rate of only 20% on long-term gains. The long-term holding of cryptocurrencies requires a high demand for an exchange that needs to be secure and stable, such as Gate.io, one of the top 10 global digital currency exchanges in the world.
2. Offsetting Gains with Losses
As with any investment, you can take advantage of crypto gains by claiming losses on other investments in the year that you realize profits. This means that if you make $10,000 from the sale of Bitcoin price live, but lose $10,000 from the sale of Ether, you will owe no taxes since you broke even.
However, these losses are not limited to other forms of cryptocurrencies. If you are about to cash out a large crypto investment, look at the rest of your portfolio to see if you can sell other loss-making investments to offset your gains. If you end up losing much more than a year's worth of gains, you can deduct up to $3,000 of excess losses from your personal income taxes and carry forward any unused losses to offset your future investment gains.
3. Donate to Charity
If you do not need all of the profits from your crypto investments, you can reduce your tax burden by donating at least some of your cryptocurrency to charity. You will receive a deduction equal to the full value of your cryptocurrency, including any gains. However, this usually only makes sense if you are already planning to donate to charity.
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