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What Are the Taxes On Capital Gains For Crypto Holders?

Crypto investors have to pay crypto taxes. These are taxes on what the IRS defines as virtual currencies.

🤔 Understanding how taxes for crypto work

Historically, one of the hallmarks of cryptocurrency has been its anonymity. But in 2020, both the FBI and IRS increased their efforts to ensure crypto users aren’t breaking the law – or avoiding their tax bills. After all, where investors see profits, Uncle Sam sees tax potential.

Unfortunately, crypto’s trademark anonymity and trailblazing technology make it more difficult to use. Though it’s designed as a currency, the IRS treats it like a security, injecting more murkiness into an already-intricate situation.

In the United States, the IRS defines virtual currencies as property. For tax purposes, this relegates them to “capital assets” on par with stocks, bonds and even real estate. As such, crypto users must pay taxes on their gains, even if your broker doesn’t report transactions to the IRS. Conversely, you can claim crypto losses against other investments or ordinary income.

However, because they’re regulated like an investment and spent like money, cryptocurrency taxes aren’t as cut-and-dry as other securities. The IRS considers a taxable crypto transaction to include:

  • Exchanging cryptocurrencies for fiat money, or “cashing out”
  • Paying for goods and services, such as a new Tesla or a cup of coffee
  • Exchanging one currency for another
  • Receiving mined or forked currencies

As you might imagine, this introduces quite a few wrinkles into the equation.

What this means for you

Instead of ducking the bill, try these legitimate strategies to limit high capital gains taxes on your crypto trades.

1. Hold out for the long-term.

Typically, you’ll see the most favorable tax treatment if you hold your cryptocurrency for a year or more. Depending on your taxable income, this can potentially shrink your tax rate from a high of 37% to 20%. (The difference between the highest long- and short-term capital gains tax rates.)

2. Sell your oldest coins first.

Say that you want to sell or trade some of your Bitcoin, but not all of it. Typically, you’ll incur the lowest tax bill by selling your oldest coins first. (Assuming that your oldest coins fall under the long-term capital gains tax rate.)

3. Take capital losses.

You can use crypto losses to offset your gains and even your taxable income, just like with stocks and bonds.

4. Hold your crypto in tax-advantaged accounts.

One of the easiest ways to minimize your crypto taxes is simply choosing the correct accounts. By holding your cryptocurrencies in a tax-advantaged retirement account like a 401(k) or IRA, you can enjoy tax-free growth. You can also strategize around your current and future projected incomes to lower your lifetime tax burden, too.

5. Make a charitable donation.

There is another way to minimize your cryptocurrency tax burden: with charitable giving. Rather than gifting cash, you can donate cryptocurrencies to qualified charities and nonprofits. Then, you can claim the appreciated market value of your donation as a deduction against your taxable income.

6. Invest with

The current tax landscape surrounding cryptocurrencies makes them surprisingly onerous to own and use. And with the IRS stepping up enforcement and surveillance, investors need to step more carefully than ever.

But makes it easier to navigate the minefield of cryptocurrency tax obligations. With our all-new Crypto Kit, you can access exchange-traded trusts and a diversified fund that invests in cryptos like Bitcoin, Ethereum and Litecoin.

Disclosures is the trade name of Quantalytics Holdings, LLC., LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC ("Quantalytics"). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC ("QAI"), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of's investment advisory services.

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