London, UK — “Wealth is not having a lot of money; it is about having a lot of options,” said Chris Rock.
Cryptocurrency is an addition to money. It will change the market structure and probably also the architecture of the structure of the internet. It is considered the next generation’s money. If you are willing to accept, then it is a great opportunity for you to invest in Crypto and make a profit. Cryptocurrency is taxable, like stock and other types of properties. When you make a profit after selling Crypto, then you have to pay taxes on the gain. Tax rates for the crypto gain are similar to capital gains taxes for stocks.
People think of Crypto as a currency, but IRS does not classify it as real money. Instead, the IRS considers cryptocurrency as property. Cryptocurrency transactions are taxable by law, just like transactions related to any other property. Taxes are due when you trade, dispose or sell cryptocurrency in any way and recognize profits. Many investors consider Crypto as a good investment, but some of them do not know that they have to pay taxes on their crypto investment as they are unaware of this fact. Crypto is a fairly new asset class that has created a great amount of wealth for beginners. But whenever wealth is generated, chances are it will end up getting taxed in some way. If you dispose of your cryptocurrency and realize a gain on it, this is referred to as a capital gain, the same as if you sold any other piece of property. Per the IRS: “The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets.” Benjamin Phillips, a crypto analyst from Blue Royal Investments, says that there are various ways to avoid taxes on cryptocurrency for early investors who want to avoid taxes legally, such as offsetting crypto gains with losses, you can hold your Crypto until you die, you can gift extra cryptos to someone, and donating Crypto as a charity, etc. We are going to discuss here a few ways to make you aware of such different hacks to legally avoid cryptocurrency taxes.
1-Offset crypto gains with losses
When you invest, there is always a risk of loss. You can either gain or lose. The gain and loss all depend upon the selling price of an asset and its real cost. The United States’ tax code is that capital gains and losses can balance each other. If you deliberately use this to your edge, this is called tax-loss harvesting.
In accordance with tax-loss harvesting, gains and losses of similar types balance each other first. Short-term gains would balance short-term losses, and the same is the rule for long-term tax items. It means you can offset any resulting net loss against a net gain of the other type.
2- Hold onto it until you die
You can use your money invested in cryptocurrency as a wealth-building tool if you do not need to go access the money you invested in your Crypto. But for this purpose, you must believe in the long-term potential value of cryptocurrency. If you don’t need to use the money you’ve invested in your cryptocurrency, this strategy might offer outstanding tax treatment. To make sure you arrange this kind of inheritance properly, you may talk to your financial professional who specializes in such planning.
3-Donate as charity to non-profit organizations
All the non-profit organizations under the 501(c)(3) section are tax exempted from IRS. You can donate your cryptocurrency to a certified charity; then, it may be tax-deductible. But you must have held the Crypto for at least one year before donating it. Then, it will qualify for tax exemptions.
4- Gifting Cryptocurrency
Gifting cryptocurrency to your friends and family may help you avoid taxation on your gains. You can simply gift them by transferring them to their wallets or accounts. The person who has got Crypto as a gift also won’t have to pay a gift tax, either. Currently, IRS has some limits regarding gifting crypto that you can give up to $15,000 per person per year without filing a gift tax return or paying any gift taxes. However, even if you exceed the $15,000 limit, you still won’t have to pay gift taxes unless you’ve used up your entire $11.7 million lifetime estate exemption. In case you send cryptocurrencies worth $15,000 to each recipient or to more than one recipient, then it will not become a taxable event. Cryptocurrencies received as a gift from a friend, family member, or someone are not legally obligated to report to IRS. When you decide to use it to generate income through trading or you want to sell it, then that income will become taxable, and you have to pay taxes according to IRS tax rates on it.
5- Transferring cryptocurrency to yourself
You can transfer your tokens between your accounts and wallets. There is no limit to transferring your cryptocurrency to yourself. You can do it as many times as you want. It will not make the event taxable. This event is only taxable unless you sell or trade, or make any purchase of those cryptos.
6-Declaration of Crypto as income
When you receive any cryptocurrency in exchange for goods and services, then it is treated as your income, and taxation works differently. You have to record and report the fair market value of the Crypto that you received and count it as an income on your tax return. When you report this income, then the ordinary income tax will apply here. You must record and report the fair market value of the cryptocurrency you receive and count it as income on your tax return.
Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.