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How Not to Pay Taxes on Bitcoin

How to Not Pay Taxes on Bitcoin

Whether you’re in the US, UK, or most of Europe, you’ll need to pay tax on profits made from Bitcoin and other cryptocurrencies. While blockchain technology and the financial system are decentralized and independent of government, this unfortunately does not mean that profits are. But, if you are in favor of Bitcoin becoming more credible in society, these are the commitments we must accept.

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However, there are a few ways to reduce your crypto tax in a legal way. With the help of financial comparison site Financer.com, we have found some of the most effective ways to reduce your crypto tax. It’s a subject that is often overlooked, but given the capacity for rapid growth some small-cap altcoins have, it’s very important to consider how much tax you may owe.


How not to tax Bitcoin
Have cryptocurrency in a retirement account
Tax Loss Harvest
Other Considerations on How to Reduce Crypto Taxes


How not to tax Bitcoin

How not to tax Bitcoin

One of the best ways to mitigate paying taxes on Bitcoin is to sell the coin during a year when you had low income. In 2023, many of us will be self-employed or running small businesses where incomes fluctuate. The years in which you are more profitable, you will pay more taxes. So when selling Bitcoin, you should consider which side of the tax year you should be selling it on, because selling during a low-income year could mean paying less tax. Or, if you had capital losses that year, it could mean not paying taxes.


Have cryptocurrency in a retirement account

If you can keep your crypto assets in a tax-advantaged or retirement wrapper, then this is the best answer to how not to pay taxes on Bitcoin and altcoins. Of course, it depends on whether you are a long-term investor, but if you want to minimize taxes on Bitcoin, you certainly want to be a long-term investor.

A Roth IRA is a good example in which taxes are paid on contributions, but all future withdrawals are tax-free. Crypto can sometimes be legitimate asset support in a Roth IRA, but not always directly (contributions must be in cash). However, there are other retirement and tax wrappers and it will depend on the jurisdiction or country in which you are investing.


Tax Loss Harvest

If you have made capital losses on your cryptocurrency investments, you can offset those losses with capital gains you have made on other investments. This can help reduce your overall tax liability. For example, many of your altcoin investments have likely suffered in recent years. These losses could be made at the same time as when you are looking to sell your Bitcoin.

The beauty of tax loss collection in the US and many other countries is that the “wash sale rule” of having to wait 30 days (as with stocks) does not apply to cryptocurrencies.


Other Considerations on How to Reduce Crypto Taxes

Again, depending on the jurisdiction, you can sometimes give away cryptocurrency. This means you have no income tax liability on crypto. If the gift is more than $15,000, you must submit a gift tax return. Cryptocurrency can also be given as a donation and is one of the few occasions where its disposal is not taxed.

There are other creative methods as well, such as getting a crypto loan, moving to a country with lower taxes, as well as simply consulting with a tax advisor.


Disclaimer: The information provided in this article is solely the opinion of the author and not investment advice; It is provided for educational purposes only. By using this, you agree that the information does not constitute any investment or financial instruction. Please do your own research and contact financial advisors before making any investment decisions.


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