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With the increase in investment in digital assets, Bitcoin and other cryptocurrencies have made a special place. With its rising popularity, people are finding new ways by which they can minimize taxation whilst dealing with cryptocurrency. While avoiding taxes on crypto assets may look like a good option, it is crucial to learn that failing to pay taxes might lead to serious legal issues. In the following article, we shall discuss some strategies to avoid paying taxes or reducing tax liabilities on Bitcoin.
So what are some ways to avoid taxes on Bitcoin?
Holding on the Bitcoins over a long period:
Investing in Bitcoins and holding them over a long period would qualify the investment as long-term investment capital, minimising the taxations since long-term capital gain rates are comparatively less than short-term investments. A long-term capital gain is selling your assets after owning them for at least 12 months. Any profit taxed at short-term capital gains can be as high as 37%.
Accessing the cryptocurrency indirectly
It can be an effective way to indirectly get exposure to cryptocurrency such as Bitcoin to reduce taxation on the respective digital asset. Global-level portfolios are present, allowing the investors to have indirect exposure to these cryptocurrencies.
Offsetting gains with losses
In case you have experienced loss on other investments, you can compensate your losses with Bitcoin gains which can be helpful to reduce tax liabilities. The strategy is termed “tax-loss harvesting.” even the remaining capital loss can be carried forward in future.
Gaining profits at low-income year
The tax rate you pay on cryptocurrency disposals is based on your income bracket in a given year. Investors tend to gain benefits from cryptocurrencies like Bitcoins in the years they have low yearly income. This would help to dissolve taxation on your current assets.
Trading bitcoins in a tax-advantaged account
Another way to minimize Bitcoin tax liabilities is trading in a tax-advantaged account, an Individual Retirement Account(IRA). By this, you would be able to reduce taxation. Some tax-advantaged accounts allow you to withdraw funds tax-free after a certain period. But you should note that all tax-advantage accounts allow you to trade Bitcoin.
Before taking further steps to invest in Bitcoins or any other cryptocurrencies, you should consider legal advice if you are not well-versed in digital investments. Failing to understand tax regulations could lead you to serious legal issues.
There are several legal ways to reduce taxes on Bitcoin by adopting such strategies. Holding onto your Bitcoin for at least one year, offsetting your gains with losses etc., but it’s important to note that tax evasion is illegal and could lead to serious consequences. Ensuring that you are abiding by the law.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
