Last year some guideline was issued by IRS which gave a serious warning to all the owners of cryptocurrency that they should pay off their crypto tax amount on time in order to avoid any legal actions against them. Some strategies are now at your feet as to how to one can save crypto tax on your currency.
Five ways of saving crypto tax bill:
Being a long-term investor:
The crypto tax is lower when you invest for one-year investment in any cryptocurrency. It is suggested that in cryptocurrency short-term investment is not advisable as it doesn’t help the investor to gain any high profits from his investment. Warren Buffet famously said, “The longer the view, the wiser the intention.”
Whenever anyone wants to invest in cryptocurrency they should first do a thorough study about the topic and then invest in it because if a layman invests in it there are very fewer chances for him/her to gain anything out of their investment.
Immediately as you gain money after selling the cryptocurrency put aside the money in form of dollars and make a profit ( and not in another cryptocurrency):
How money should be put aside by a person after gaining his/her profit depends on two main points which are
- How many cryptocurrencies was owned by them?
- Their tax bracket.
The people who own cryptocurrency for a long period of time they are liable to pay the long-term-capital-gains-tax which is either 0%, 15% or 20% that also depends on their tax bracket. There is a simple math here which states that if you bear the cryptocurrency for a longer period of time then you are reliable to likely to pay higher and more potential tax which is close to 40% but then again it depends on the tax bracket of person.
There should be a detailed record of a person’s cryptocurrency transactions:
All documents which are related to the purchase and the sale of the cryptocurrency should be kept well by the owner of the currency dealing with it. He/she have an option of even exporting their transaction between the cryptocurrency wallet and exchange website to their spreadsheets. Unlike the financial companies which often tend to send a person yearly-end tax payments, also most of the cryptocurrency companies don’t even bother to do this much. Due to their lethargic attitude, this creates complications for the taxpayers so now some companies have started to issue 1099-K tax-forms for the convince of their customers.
A tax attorney should be hired by the concerned person to help them file their tax return:
This pointer is important for the people who owe back taxes, they should definitely keep a lawyer or an accountant which help then in paying of their taxes well or else they all will be behind the bars. A lot of famous people have been arrested due to this like Sophia Lauren, Wesley Snipes, and the infamous Al Capone. If you think there is a possibility that you will not be able to pay off the taxes before the deadline of 17th April then you should seek help from your tax attorney or accountant. Although some companies like Coinebase have now started to provide guidance to their users and to how much they have to pay the taxes, it is still considered prudent to hire an accountant or a tax attorney in such cases.
Gifting or donating cryptocurrency will save its owner from paying taxes only if it’s not sold by the owner to anyone:
The process of gifting cryptocurrency is similar to that of gifting of stocks to a person. According to Schwab, when we gift a stock, the value of the gift is the fair market value when the stock is being gifted. So, according to the IRS guidelines, the maximum gift size in the previous year of tax purpose was up to $14,000 per gift.