HomeCrypto blog5 Important Crypto Tax Tips | Crypto Tax Explained

5 Important Crypto Tax Tips | Crypto Tax Explained

5 important crypto tax tips, Did you know the average attention span of a human in 2022 is eight seconds? The average attention span of a goldfish is nine seconds. If you’re more attentive than a goldfish then read this article till the end.

In this article, we’ll examine how to report cryptocurrency to the IRS, offer you 5 important crypto tax tips, and go over crypto tax havens.

Reporting cryptocurrency to the IRS

5 important crypto tax tips, It’s critical to begin this article by discussing how the IRS views cryptocurrency at least for u.s citizens. The IRS considers all digital assets or crypto to be property, making them taxable in the same way that stocks or real estate are. You don’t have to declare anything to the IRS if you are a pure investor this tax year just using money to buy crypto.

Most typically reporting is necessary when one of the following events occurs. Swapping one cryptocurrency for another, selling your cryptocurrency for fiat currency, or utilizing cryptocurrency to purchase goods and services, for example buying some Dallas mavericks merchandise with dogecoin. However, keep in mind that all taxes are based on your income and just because something is taxable doesn’t mean you have to pay taxes on it it’s all situational.

Web 3.0 Crypto coins
Picture by cryptoglobel.com

The main thing is to record taxable crypto events and to be honest in order to avoid tax avoidance claims. Here are 5 important crypto tax tips.

Related: What is a Crypto Faucet? | Cryptocurrency Faucets Explained

1- Keep the number of taxable events as low as possible 

Almost every crypto trading event is taxable in most jurisdictions. Even if you trade crypto for crypto on Dex or decentralized exchange it’s still a taxable event. As a result, keep track of your trades and if you predominantly use a centralized exchange, for example, FTX doesn’t worry, because they’ll typically provide you with a tax report that will assist you in the filing.

2- Hodl in fiat currency 

This is a good segue into our second crypto tax tip which is to just huddle and continue to accumulate cash via dollar cost averaging. This is due to two fundamental factors. 

First is that if you retain cryptocurrency for more than a year in most countries including us the capital gains tax is deemed long-term when you sell. Long-term capital gains are generally taxed at a rate of zero to 20 percent. Whereas short-term profits are taxed at a rate of 10 to 40 percent depending on your income.

The second reason and this is not financial advice is that we’re still in the early phases of cryptocurrency. So it’s probably preferable to only huddle projects that you believe will perform well in the future.

3- Divide your profits across two years

If you opt to cash out the capital gains tax will vary depending on how much of your gains you sell out. Assume you made a thousand dollars in profits, if you claim all of your gains in one year you may be taxed at 20% but if you spread them out over two years you may be taxed at 50% again this is dependent on your income.

Related: Crypto Mining Vs Staking: Which one is Best?

4- Reclaiming tax losses 

Portfolio Rebalancing
Crypto Portfolio

Because cryptocurrency is classified as an asset like real estate or equities you only realize a capital gain when you sell, trade, or spend it. Other capital gains can be mitigated through tax loss harvesting. Assume you lost $500 by buying Shib at its peak last year but made $2,500 on luna you could sell the ship at a loss and then only pay capital gains tax on two thousand dollars if you cashed out all of the luna.  Lowering your crypto tax obligations: Tax loss harvesting is still lawful in the united states as of this writing although this may change in the future.

5- Hire a professional or use cryptocurrency tax software 

If you are a serious crypto swing or day trader you should invest in crypto tax tracking software or employ an expert. I won’t get into the specific programs to use however coin tracking is a good one but do your own research so you don’t get audited by the IRS in the future.

Cryptocurrency Tax Havens 

I could write an entire article on this topic if you’re well a decent crypto tax tip is to consider moving to a country where crypto taxation is less harsh. Let’s take a quick look at some of the top countries that are pro-crypto in terms of taxation.

Cayman Islands

Crypto tax tips, Because of its liberal capital gains tax regulations, the cayman islands is regarded as one of the most appealing locations for crypto startups and individuals.

Furthermore, the cayman islands monetary administration acknowledges the importance of fintech enterprises and crypto startups and has constructed a liberal tax environment to allow the local sector of these businesses to thrive. 

Puerto Rico

If you wish to stay in a u.s territory Puerto Rico can be a decent choice. When it comes to federal income taxes the territory is actually regarded as a foreign country by the united states. Certain eligible investors and businesses in particular are exempt from paying capital gains taxes on assets acquired after relocating.


Important crypto tax tips, Switzerland is the final country that should be mentioned and examined in depth, because of its low tax and privacy rules they are one of the most well-known global tax havens. They allow affluent individuals to pay lower taxes and crypto transactions are classified as ordinary transactions with all crypto trading earnings and losses being tax-free for individual traders and investors. However, businesses are still taxed.

Impermanent Loss
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All crypto trading Earnings and Losses are Tax-free

The country’s rise in crypto acceptance and crypto companies has been phenomenal and a city in Switzerland recently announced its intention to become Europe’s first bitcoin city. 

Related: Future of Crypto currency

Antigua and Barbuda, Germany, malta, and Slovenia are also viable options. Of course, if you intend to relocate to another nation to avoid crypto taxation you should always conduct your own study. Finally, if you’re a bitcoin enthusiast El Salvador might be the place for you. I hope you got value from this article, so I’m curious what are your thoughts on crypto taxes do you use specific tracking software leave a comment below.



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