What crypto tax loopholes will Biden target?

15 Jun, 2023 · 4 min read

Patrick Henry: Crypto Tax Manager
Patrick
Crypto Tax Manager

On May 9, 2023, President Biden claimed that ​​”Congress should cut crypto tax loopholes that help wealthy investors,” with an early version of his tax plans suggesting that the government could raise over $20 billion through crypto tax rules.

Is the US applying the wash sale rule to crypto trading? What loopholes do crypto investors actually have currently? Let’s cover what’s at stake and how investors worldwide can save you taxes with a few strategies.

Which tax loopholes benefit crypto investors?

The US government plans to save $18 billion by ending “crypto tax loopholes,” with other proposals to introduce a 30% on crypto mining, while employing more efforts, including 20,000+ IRS agents, to enforce new rules.

Currently, crypto investors can employ some strategies to legally reduce their crypto taxes, including:

  • Sell your crypto after holding it for over 12 months
  • Wash sale rule
  • Crypto tax loss harvesting
  • Direct your crypto to an IRA
  • Donating crypto to qualified charities

Reports suggest that the wash sale rule, available for crypto investors until now, may see changes.

What is the wash sale rule?

The wash sale rule is not yet applicable to crypto trades, meaning you can sell crypto and purchase it immediately (before 30 days have passed) before or after selling it.

The wash sale rule strategy is used for investors to realize a loss by selling a crypto asset and buying it right after to still own the asset, benefiting from the realized loss. By realizing that loss, investors can deduct it from their other crypto gains and reduce their taxes.

The wash sale rule, for example, is not allowed for other assets like stocks, but it is still possible to use it for crypto assets. 

When you buy back a crypto asset after selling it, your cost basis will be adjusted based on the purchase price you pay for the buyback. Also, your holding period will start over. Please keep these in mind when you utilize the wash sale rule strategy.

Track your crypto portfolio with CoinTracking

With CoinTracking, you can import your trades from hundreds of exchanges and blockchains, determine your capital gain/losses and income, and generate crypto tax forms.

Top 3 ways for crypto investors to lower taxes

There are a few other ways to lower your crypto tax bill.

1. Long-term crypto holding

In the US, you can hold your crypto assets for over 12 months before selling, enabling you to enjoy a lower capital gains tax rate, between 0% and 20%. This way, you can save a lot if you carefully plan your crypto trades over a long-term period. 

This type of long-term reduced tax rate is also present in other countries, including Germany and Portugal.

2. Crypto tax loss harvesting

Crypto tax loss harvesting is one of the best ways to reduce your crypto taxes by realizing a loss, usually at the end of the year, reducing your capital gains from other trades.

Usually, crypto investors realize losses on assets that suffered a big decline and lost most of their value. If investors have other capital gains, they can benefit from realizing a loss on this asset instead of hoping or waiting a long period for that asset to recover from such a decline in value. Don’t forget to properly report your losses on crypto taxes.

3. Donating crypto to a qualified charity

In the US, you can donate cryptocurrencies to a qualified charitable organization, enabling you to claim a charitable contribution tax deduction.

When you claim itemized deductions on your tax return, you’ll be able to use the donation to reduce your taxes by deducting this donated amount at FMV if you held the asset for more than 12 months (or at cost if your holding period is no more than 12 months) and effectively reduce your crypto taxes. 

Extra ways to lower your crypto tax bill

There are more ways to save on your crypto taxes.

If you are a long-term-oriented investor, you can buy cryptocurrency within your IRA accounts. You don’t need to pay capital gain taxes as long as the crypto assets are in your IRA account. This will help to increase your crypto investment rate of return and build your retirement savings faster.  

Both tax-deferred self-directed IRA plans and tax-free self-directed Roth IRA plans can benefit crypto investors.

Another way to save crypto taxes is to move to a state with no income taxes or a crypto-friendly state if you still plan to stay in the US. Additionally, you can move to a crypto-tax-free country

Save on crypto taxes with CoinTracking

The easiest way to save on your taxes is to accurately track your crypto trades with CoinTracking.

With CoinTracking, you can import your crypto transactions, determine gains/losses, and generate tax reports. But, you can do even more with CoinTracking:

Crypto taxes done for you with Full-Service

CoinTracking also offers a Full Service for US crypto investors. A crypto reconciliation tax expert from Polygon Advisory Group, a leading US crypto tax firm, will review your CoinTracking account, help fix any errors, and ensure you submit your crypto tax reports error-free.

Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.

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Patrick Henry: Crypto Tax Manager
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Patrick
Crypto Tax Manager
Tax Expert, Webinar-Host, Content Creator, Crypto Enthusiast and Investor. Interested in everything regarding the crypto space.
Tax Expert, Webinar-Host, Content Creator, Crypto Enthusiast and Investor. Interested in everything regarding the crypto space.

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