Crypto Tax Strategies

In the US, the IRS (Internal Revenue Service) considers cryptocurrencies as property, not as currency. That means every crypto transaction you make including buying, selling, or trading can be subject to capital gains tax. Short-term gains are typically taxed at the regular income tax rate, but long-term gains have their own separate tax brackets. Investors must keep detailed records of their transactions to calculate their tax liabilities accurately.

Yes, you will need to report and potentially pay taxes on your cryptocurrency holdings even if you have not traded them. In the US, holding cryptocurrencies in a wallet is taxable when you acquire the asset. When reporting, remember to put your initial purchase price as the cost basis. Then track the market value for potential losses or capital gains when you eventually exchange or sell them.

In the United States, some retirement accounts such as self-directed IRAs let you hold cryptocurrencies. Here, the tax benefit is that the capital gains within these accounts are generally tax-deferred. In the case of Roth IRAs, the capital gains are potentially tax-free when you withdraw. Remember, not all retirement account providers support crypto investments.

Crypto mining and staking both have distinct tax implications. The rewards you earn from mining and staking are generally considered taxable income at the fair market value when you receive them. You may owe income tax on these rewards. That is why you must keep detailed records of when you receive them.

There are several ways to minimize your crypto tax bill. Seasoned investors usually invest for the long-term, harvest their losses, take profits in a low-income year, give crypto gifts and donations, and buy and sell crypto via 401-K or IRA to reduce their tax liabilities. Some even hire crypto-specialized CPAs to help them develop a robust crypto tax strategy.