Invested in Crypto? Do This Before the End of 2024
Audio version available here (2 min. 10 sec.)
With crypto being an area where you might find great monetary gain, you need to think about the tax implications of high returns. With Bitcoin especially, you may be facing taxes on hundreds of thousands of dollars. Thankfully, there are ways to significantly reduce your crypto taxes before the end of 2024.
First, let’s cover how you may be taxed on your crypto gains. You are taxed on capital gains after selling the asset. This can be done as either short-term capital gains tax, which is used for assets you sell after a year or less of owning them; or you can be taxed for long-term capital gains, or assets you held for more than a year. Short-term capital gains are generally taxed at your income level, so the rate can vary depending on where you fall in the year’s tax brackets and tax rates. Long-term capital gains are taxed at simpler rates, either 0%, 15%, or 20%. Most people will be taxed at 15%.
For high income earners in higher tax brackets, it may be better to hold on to an asset for longer in order to be taxed at the typical long-term capital gains tax rate of 15%. A way to enhance this strategy is stepping up your tax basis for the asset. You do this by selling the asset and repurchasing it at its currently-higher price. This is most effective for cryptocurrencies with high returns like Bitcoin, as you can raise your tax basis by tens of thousands of dollars by employing the strategy. Later on, when you sell the Bitcoin for good, you won’t be taxed on as much capital gains as your original basis would have.
If you haven’t only invested in Bitcoin, chances are you have incurred some losses. This isn’t a bad thing, as you can leverage these losses to offset capital gains. However, you are required to use short-term losses to offset only short-term gains, and vice versa for long-term losses/gains. Once your losses outweigh the gains for one category, you are then allowed to use them to offset the other.
In order to eliminate the capital gains tax entirely without incurring a loss, consider donating the crypto asset to charity. When done correctly, you avoid the capital gains tax and obtain a charitable distribution deduction.
Another option is to gift your crypto. As an individual, you are able to gift up to $18,000 “without triggering any tax or reporting obligation for you or the recipients”. Married couples can give up to $36,000.
There are multiple strategies to reduce your tax burden for making money from selling your crypto assets. In order to minimize the tax you’ll have to pay, work with a trusted tax professional. To speak with one today, simply reach out to XQ CPA. We are here to help you.
Phone: 832-295-3353
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Want to save $10,000 in taxes? Read XQ CPA's official tax planning guidebook! How to Grow Your Wealth Through Tax Planning.
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