The year is close to an end and with that, the tax season is all upon us. It’s the time of the year when we all get busy with the numbers, evaluate and validate our investments. Since cryptocurrencies are a viable avenue of investment these days with the sharp rise in crypto assets we thought there will be a significant number of people struggling to plan the tax returns around their digital investments. Many don’t consider the opportunities that they can utilize to reduce their tax liabilities from the crypto investment. So, here we are with a write-up that will explain five ways using which you can lower your taxes for crypto investments.
Lower Deductions Crypto Taxes
Implementing these strategies you will be able to save substantially on your tax returns.
- Harvesting the tax loss: Harvesting tax losses is one of the most common strategies that people resort to. The process involves selling the assets that will most likely lead to a capital loss. There is a simple solution to that, which involves taking a look at the investments and determine the ones that at present are worthless of what you bought them at. Selling those assets at a lower cost will significantly reduce the net capital gains. This will drastically lower the taxable income. The current market scenario poses ample opportunities for you to harvest your losses. There are tax-loss harvesting tools that can be used to detect automatically all the coins that pose the biggest tax-loss harvesting prospects.
- Over a year Investment: Crypto investment bears a resemblance to any other form of property investment. For property, if the owner can sell the property for more than the buying price them there are significant capital gains. The Government puts tax is on the capital gains judging the total duration for which the investment was in the owner’s name. As per the norm set by the government, the tax rate is low for investments that remain in the hands of the owner for more than a year. It is more for those that remain for less than a year. This indicates that if you are holding crypto in hand for years that the tax on the capital gains will be lower than if you held it for a duration less than that.
- Keep accurate Tax records: The next tip for you to help lower your crypto tax is keeping and maintaining error-free tax records. Keeping a detailed record of all cryptocurrency transactions all through the year such as procurement date, the fiat value, selling value and date and likewise. In case you do not have a detailed record, a crypto tax calculator can help you calculate and determine the liabilities attached to your capital gains. Such a detailed system also helps you in lowers the tax returns on crypto.
- Gift your Crypto: Depending on the respective government norms, the law allows a person to gift their family members or friends up to a certain amount without any transaction proof. There is no tax levied on these kind of transactions. While the rule varies in different geographies, that is a viable way to lower your crypto taxes by gifting it to someone. When it is time to sell the crypto the tax will reflect the market value of that day. It is an unconventional option to suggest but it is worth trying.
So, that was it, four essential tips for you to significantly lower the taxes on your yearlong crypto investments. It’s all about how you plan and maintain the records that help you in getting better returns on your taxes.