How to Reduce your Crypto Taxes

29 Mar, 2023 · 6 min read

How to reduce your crypto tax bill is a million-dollar question. In the US, most operations involving crypto are taxable events. Recent proposals go in the direction of increasing taxation while also increasing regulations for crypto investors and companies. More than ever, crypto traders who built wealth are trying to understand how to legally reduce their crypto tax bill.

Today, we explore the top 7 ways to reduce your crypto taxes, whether you’re a Bitcoin Whale or a beginner investor.

The top 7 ways to reduce your crypto taxes

In the US, there are different ways to postpone or reduce your crypto taxes. We’ll also explore a bonus (more radical) option. Let’s explore the top 7 ways you can reduce your crypto taxes.

1. Wait for a long-term capital gains tax treatment

In the US, even if you trade a cryptocurrency for a stablecoin, you’ll incur a taxable event. You might have a large capital gain tax bill even if you didn’t cash out to FIAT (USD). As a result, you need to keep track of all your trades and calculate your realized capital gains to prepare for paying your taxes down the road.

However, if you hold your crypto for more than 12 months, you can enjoy a more favorable long-term capital gain tax rate. You’ll end up paying a tax rate ranging from 0% to 20%, depending on other factors (e.g., filing status). If you hold for less than 12 months, you will be subject to a short-term capital gain tax rate, ranging from 10% to 37%. Therefore, you may want to plan your trades and hold long-term to save money on your crypto taxes.

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A favorable crypto tax setting for a long-term investor is also true in other countries. In Germany, you won’t have to pay capital gains for any crypto held for more than 12 months, while several other countries offer similar tax benefits for long-term investors.

CoinTracking automatically shows you which coins can get you a tax-free or tax-reduced rate based on your holding period.


You can reduce your crypto taxes by selling your crypto after 12 months of holding it, entering a favorable long-term capital gains tax setting.

2. Take a crypto loan, deduct interest, and wait for the long-term.

Using crypto loans can be a way to effectively reduce your taxes. In a hypothetical scenario, you can take crypto loans to invest more into crypto in a bull market and wait for a long-term capital gains tax setting. When you end up selling, you’ll have a larger profit but at a lower tax rate due to long-term gains.

At the same time, if your interest payment for the crypto loan qualifies as investment interest, you’ll be able to take an interest expense deduction on your tax return if you claim itemized tax deductions. However, if you don’t itemize when filing your tax return, you will not be able to deduct the interest you pay on your crypto-backed loan. For further details, consult your tax advisor.


You can reduce your crypto taxes by taking crypto loans, deduct interest, and sell only under a long-term capital gains tax setting.

3. Reduce taxes with crypto donations to charities.

So, you have a lot of capital gains from crypto trading?

As you know, crypto to crypto and crypto to FIAT trades are taxable events in the US. A lot of other operations can incur capital gains taxes and other forms of taxation. We encourage you to find out what taxable events you’ll face in our ultimate crypto taxes guide.

One of the tax-saving strategies is to reduce your capital gains taxes by donating crypto.

In the US, you can donate crypto to a qualified charitable organization. Then, you can claim a charitable contribution tax deduction if you claim itemized deductions on your tax return.

How does it save capital gains taxes?

If the current Fair Market Value (FMV) at the time of your donation is higher than your cost basis, you can claim a tax deduction based on the FMV if you had held the crypto for more than 12 months. Otherwise, you can only deduct an amount up to your basis in the crypto.

If you donate an appreciated asset, you won’t need to report any capital gain for the difference between the FMV and your cost basis. Therefore, it is better to donate your crypto directly to a qualified charitable organization than to sell it and donate the sales proceeds unless the FMV is lower than your cost basis.

As a result, you can save capital gain taxes by donating appreciated crypto assets to qualified charitable organizations if you claim an itemized deduction on your tax return.


You can reduce your crypto taxes by claiming a charitable contribution tax deduction if you donate crypto to a qualified charitable organization and claim itemized deduction on your tax return.

4. Direct your crypto to an IRA.

If you plan to invest in crypto for the long term, you can start by looking at alternative investment vehicles that offer increased security and tax benefits. Self-directed IRAs are a good way to invest in crypto and delay or avoid paying crypto taxes.

If you invest in cryptocurrency by using a tax-deferred self-directed IRA plan or a tax-free self-directed Roth IRA plan, your crypto assets can grow tax-deferred or tax-free. As a result, it will increase your investment rate of return when compared to investing by using a taxable account.


You can reduce your crypto taxes by using a tax-free self-directed Roth IRA or a tax-deferred self-directed IRA plan.

5. Reduce crypto taxes with tax loss harvesting.

In the US, wash sale rules do not apply to crypto trading. Therefore, you can use a loss harvesting strategy to realize losses and use it to offset your capital gains and help reduce your crypto tax bill.

Tax-loss harvesting consists of selling a crypto asset that has lost its value. You can sell for a loss and use it to offset your gains from other trades. If you believe the coin will recover or you want to keep it, you can buy it back after you sell it at the low FMV. The only downside is you will need to restart your holding period. If you are a long-term holder, you need to be careful when using loss harvesting.


You can reduce your taxes by selling some of your crypto assets at a loss, using tax-loss harvesting, and offset some of your capital gains.

6. Delay crypto taxes with specific identification.

In the US, you can choose between two accounting methods: FIFO and specific identification.

How does it change your taxes?

Well, under specific identification, you can use a higher cost basis when calculating your gains, resulting in lower capital gains when compared to using First In First Out (FIFO). The change in methods doesn’t mean that you won’t end up paying all the taxes for your capital gains, but you’ll be able to delay some tax liability to future tax years. If you have cash flow issues, you can use this strategy to pay fewer taxes in the current year.

However, please know that once you choose the specific identification method, there are other factors to consider if you want to change to another basis allocation method. Check all the details about changing accounting methods for crypto taxes in this guide.


You can postpone your crypto tax bill by choosing the appropriate accounting methods for capital gains calculations.

7. Bonus case: Move to a crypto-friendly location to reduce taxes.

None of the strategies fit your situation? There’s a last, more radical change: moving to a crypto-tax-friendly country.

There are states in the US that don’t impose any income tax for individual taxpayers. If you have large crypto profits, you can consider moving to a state-tax-free place in the US and save on your crypto taxes. There are other factors you need to consider, but this is a strategy you can use to reduce your taxes.

You can consider moving (and your assets) to Puerto Rico (under formerly named Act 22) and benefit from low-income taxes and zero capital gains taxes for years. Check all the details about a possible move in our 7 crypto trends and tax tips report. Please consider all the caveats when implementing this possible move. Moreover, you should consult with crypto tax accountants and lawyers to evaluate all the pros and cons of such a move.

*This post is part of the Crypto Taxes AMA series. Follow our weekly AMAs on Twitter where our expert CPA, Sharon Yip answers your crypto tax questions. You can download 20+ AMA crypto tax reports for free.

Learn how to enter your crypto donations into CoinTracking:

CoinTracking can help you manage all your tax obligations by:

  1. Importing (API & CSV) your trades from 110+ exchanges/wallets.
  2. Supporting your DeFi trades (e.g., Uniswap/1inch).
  3. Importing your Binance Chain and Binance Smart Chain transactions.
  4. 25+ advanced reports, including which coins offer you a tax-free rate.
  5. Calculating Capital Gains automatically.
  6. Supporting 12 accounting methods (e.g., FIFO, LIFO, HMRC, ACB), accepted worldwide.
  7. Generating compliant Tax Reports in your country.

If you need personalized help reviewing your trades or preparing your US tax returns, check out our CoinTracking Full Service. A team of crypto tax experts led by Sharon Yip, who helped us with this article, provides assistance for CT Full Service.

Follow us for more crypto tax guides:

  1. 2021’s NFT guide (with taxes).
  2. Is Bitcoin taxable? The ultimate guide for 2021 taxes.
  3. Earn Interest on Crypto: The Taxes Guide.
  4. Do you pay taxes on Bitcoin debit cards purchases?
  5. How to calculate taxes with Bitcoin dollar-cost averaging?
  6. Tax implications of buying a Tesla with Bitcoin.
  7. Is transferring Crypto between wallets a taxable event?
  8. 5 ways a Blockchain fork impacts your Crypto taxes.
  9. Tax implications of getting paid in Crypto.
  10. Receiving a free airdrop? Watch out for taxes.
  11. Do you pay taxes on crypto trades?
  12. How to report crypto in your taxes?
  13. Do you pay taxes on Bitcoin Mining?
  14. Is there a crypto gift tax?
  15. Do you pay taxes on crypto staking rewards?
  16. Do you pay tax on stolen, hacked, or lost crypto?
  17. FIFO for crypto taxes? Implications of accounting methods.

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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