Taxes and Bitcoin: The Next Level of Strategy for Crypto Investors


So you own some bitcoin, maybe even trade it around a bit. You’ve made some profit and understand the basics. What’s next?

In the United States, as well as many other countries around the world, litigious bodies are starting to wise up to cryptocurrency investments. Taxing them as they do other types of common income or assets.

Whether you bought your bitcoin via a peer-to-peer network, or on a popular crypto exchange platform like, you’ll need to be prepared to pay what you owe on these purchases and trades.

It’s important that you arrange to pay these taxes as they arise, but as you get ready to pay there are a few useful things to know about how cryptocurrency holdings can affect what you may owe. There are also ways that you can minimize what you will owe in taxes overall. All legal, all useful. Some just take a bit of capital and groundwork.

Collate Your Information

First things first. Anyone over the age of 18 knows that as the tax year comes to an end, you’ll need to start collecting all of the relevant information you’ll need to file. For crypto investors, you’ll want to start by sitting down and totaling your income and expenses.

You’ll need to collect and estimate your crypto-generated income YTD as well as any estimated income for the remainder of the year. Calculating capital gains and income from mining or staking will give you an idea of what you’ll need to offset your tax liability.

Follow this up by calculating expenses. Mortgages, property taxes, student loan interest… Plug it into an income tax calculator to get an idea of what you’ll be paying for the year. Remember to add in filing status for a realistic representation. Once you’re aware of your new tax liability, you can start planning on how to offset it.

Hacks to Minimize or Avoid Tax

There are a few different techniques that any tax-savvy civilian can use to help offset their tax liability.  Perhaps the biggest way for someone with crypto to offset their overall tax payment is to lose a bit of money.

Trade at a Loss


Every time bitcoin is traded, it incurs a gain or loss that is liable for taxation. This includes exchanges that don’t involve fiat in any way. This is because the US has classified cryptocurrencies as property assets. So whether your trading bitcoin for fiat, ethereum for ripple, or buying goods or services with crypto- each of these is a taxable event.

The best and easiest way to reduce your capital gains is to store that crypto uptight. If you do have to trade, be hyper-aware of what that trade might incur tax-wise.

Sell Off Losses

Because crypto is highly volatile, some investors are holding on to unrealized losses. Which means that selling off a portion of these losses, just in time for the tax year-end, could trigger a “capital loss”, which can then be used to offset what you may owe on other capital gains or even ordinary income.

Since all capital gains are viewed as the same entity, harvesting crypto losses can be used to nullify income generated from other means, like stock and bonds.

Remember Loss Carryover

If you choose to harvest losses, and your capital loss exceeds your capital gains, you will then have a carryover loss that can be used to offset gains in the future.

Go Offshore

There are quite a few ways to reduce your tax liability by working through offshore LLCs. PUrchasing crypto within an IRA or International life insurance policy can shield that currency from tax liability. You can also gain residency in the US territory of Puerto Rico- if you spend at least 183 days of the year on the island, any and all of your capital gains earned through cryptocurrency could be tax-exempt.

You can also work on gaining citizenship in other countries and just give up your US citizenship- making you exempt from US tax schemes for life. However, most citizenship processes take about 5 years. So plan ahead.

Itemize Deductions

The other way to significantly reduce tax liability is to pay close attention to your itemized deductions. A tedious task that if done correctly, could pay off big.

Medical Expenses

The current threshold for deducting medical expenses is expenses meet or exceed 10% of your Adjusted Gross Income (AGI). So for anyone that has fallen under a pile of medical debt, don’t forget to weigh this against your AGI and use it as a viable, and possibly very large, deduction.

State Income Taxes

Pay your state income taxes early! If you live in a state where income tax is required, make estimated payments towards next year’s income tax. Each of those payments will be deductible from this year’s tax liability.

State Property Taxes

Same as with state income taxes, property tax payments are tax-deductible if paid in advance. Keep in mind that this only applies to property that has been fully assessed and it has a limitation of $10,000.

Charitable Contributions

Use your HODL to donate to charity. This will allow you to deduct the full market value of your crypto that has been donated and you won’t need to pay capital gains tax.

HSA and IRA Contributions

Health savings account (HSA) and Individual Retirement Account (IRA) contributions are subtracted from your income before calculating AGI. So if you heavily invest in crypto, consider maxing out HSA, IRA, and 401(k) contributions before you calculate your taxes.


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Disclaimer: All content found on is only for informational purposes and should not be considered as financial advice. Do your own research before making any investment. Use information at your own risk.

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