If you have been in a situation where you are looking at the market and cryptocurrency gains taxes, you will know it is not that easy to find strategies. There are only a few specific strategies listed below, but there may be more depending on the location.
If you haven’t already realised, the US government has been struggling with cryptocurrencies for some time now. The IRS has stated repeatedly that it isn’t going anywhere and will continue to try and apply traditional rules on trading gains from cryptocurrency investments. “The notice provides that virtual currency is considered property for US Federal tax purposes,” the IRS said in the release. “General tax principles that apply to property transactions apply to transactions using virtual currency.”
Transacting with crypto will be treated as a taxable event. This simplifies things greatly – instead of reporting every single trade, you just report the price at which you bought, and the price at which you sold. So to maintain each and every record of transactions most people use softwares that helps to reduce their effort. There are various best crypto tax software present nowadays and reduce the workload of people. Keep in mind that capital gains rules may apply; if you held your coins for less than a year before selling, you’ll likely owe short-term capital gains taxes (which are generally more favourable than long-term capital gains). You’ll also have to report any long-term gains.
Strategies to reduce your crypto gain tax
- The best way to minimise taxes for crypto gains is to convert all of your crypto coins back to USD, which will then allow for tax-free crypto trading again. Another option is storing most of your invested funds in an account outside of India, so as not to incur any losses.
- Utilise long term capital gains of 20% instead of short term capital gains of 30%.
- Transfer a portfolio into an offshore fund with four years or more duration before selling any cryptocurrency to avoid short term capital gains tax.
- Convert cryptocurrency to Gold/Futures
- Hold your crypto for a period of more than 3 years to avoid long term capital gains tax.
- Donate your cryptocurrency to an Indian Non Profit Organization
- Set up a Private Company, Incorporate and make use of the 80C tax benefits on using crypto.
There are also third party companies that can help out with this process such as CoinSwitch and Robinhood Crypto and with these companies you can reduce your taxes on crypto gains to some extent. The other way to reduce your crypto gain taxes is by taking a few days off every year off. And, just like other countries’ tax holidays, it’s possible that the US may be able to pass something similar in this area.
Apart from these there are various crypto software such as Binocs that helps you a lot in this area. Binocs is the best crypto tax software nowadays that not only helps you but it also gives advice related to the cryptocurrency market.