Top 10 Ways to Cut or Reduce Your Crypto Tax in 2022

Undoubtedly, cryptocurrency has evolved to be one of the hottest financial topics of discussion in today's world. A lot of cryptocurrency investors have made huge profits over the years and the trend is highly likely to continue. If you are planning to invest in cryptocurrencies, you'd be in search of the right time to cash out for high returns. However, before proceeding with the same, you should be in a position to deal with crypto taxes in the best possible manner. This article will throw light on the top 10 ways to cut or reduce your crypto tax in 2022.

Long Term Investment

No wonder that a majority of investors enter the cryptocurrency market to make huge profits in the least possible time. However, as a matter of fact, holding your cryptocurrency assets for the long term has a direct implication on the taxes you pay. In this process, you'll likely pay a reduced tax rate on any capital gain.

Selling in a Low-Income Year

Selling your crypto assets in a low-income year is one of the best ways to deal with taxes on both short-term and long-term gains. This is simply because your short-term gains (which are taxed as ordinary income) won't have as much other income added on and that pushes you into a higher tax bracket. As far as long-term gains are concerned, a lower overall income for a particular year can mean a lower tax rate on those gains, too.

Investing in Cryptocurrencies through a Retirement Plan

Investing in a tax-deferred or tax-free Self-Directed Individual Retirement Account (SDIRA) is associated with lower tax payments. This plan allows the investors to trade without triggering taxable events.

Offset Capital Gains with Capital Losses

Yet another widely implemented strategy to cut or reduce your crypto tax is by offsetting capital gains with of capital losses. Subtracting losses on crypto assets (sold during the year) from taxable gains on cryptocurrencies that have appreciated in value serves the purpose.

Reducing Taxable Income

Quite evidently, when the income that is to be taxed is reduced, the amount of tax deducted will also be reduced. Thus, looking for ways to reduce your taxable income turns out to be one of the ways in which you can cut your crypto tax.

Bequeathing Your Crypto Assets as Part of Your Estate

Here, your cryptocurrency investment will increase in value when compared to its fair market value at the time of your death. This ultimately means that your heirs will not be required to pay taxes based on your original basis on selling the cryptocurrencies they inherited.

Gifting Crypto Assets

When you are gifting crypto assets, you are taking a step towards reducing your crypto tax. The one receiving these assets might earn a low enough income where he/she won't pay taxes on the appreciated property on selling or pay fewer taxes than what you have paid had you sold the cryptocurrencies yourself.

Donating Appreciated Cryptocurrencies to Charity

When you donate your appreciated cryptocurrencies to charity, you get to enjoy two benefits – one, there is no capital gains tax and second, it can also trigger a significant tax deduction on claiming your tax return.

Moving to a Place with Tax Benefits

Moving to a place with tax benefits is yet another medium of cutting down crypto taxes. For example – Puerto Rico is a U.S. territory that boasts of unique tax benefits. Though moving to a different place altogether just for the sake of saving on your tax is definitely not one of the best strategies to consider but if you are willing to do so then do consult a tax advisor before you make the final call.

Consulting a Tax Advisor

All things said and done, end of the day what everything boils down to is the fact that we are no experts in effectively managing our cryptocurrency portfolio from a taxes point of view. Thus, consulting a tax advisor for the same is an ideal way to go about it.