Year-End Moves That Could Reduce Your Crypto Tax Bill
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On November 18, 2021, the Criminal Investigation Internal Revenue Service (IRS), revealed that it had seized $3.5 billion in crypto. The seizures were made as part of non-tax investigations over the past fiscal year. According to the announcement by the IRS, crypto seizures made up 93% of all seizures made during the period.

The report revealed that crypto had become the dominant form of payment in criminal cases where the IRS seized funds. It shows that the IRS is paying special attention to the crypto sector for tax purposes.

However, while paying taxes is a legal duty, there are certain year-end moves that an individual can take to reduce their overall crypto tax bill. Here are some of the top measures one should consider.

The IRS And Crypto

In October 2019, the IRS updated its guidelines on crypto taxation. In general, the IRS classifies crypto as property for taxation purposes. Consequently, investors are required to pay a tax on the difference between the buying price and the selling price. While buying crypto is not a taxable event, the following transactions could generate taxable events: 

  • Converting it to cash or digital asset
  • Using it to pay for services or goods
  • Receiving payments for work done

How To Reduce The Crypto Tax Bill

To ensure that you minimize your crypto tax bill, consider these measures: 

Keep Track Of Your Gains

A major challenge for any crypto investor is how to keep track of gains and losses. It is especially challenging for day traders who may hold multiple accounts in multiple exchanges and use multiple wallets while holding multiple coins. Besides that, most exchanges do not generate Form 1099B for their users, which means users have to make the calculations regarding gains and losses on their own.

The best solution for high-volume traders is to use software to help them estimate their annual gains and losses. One such example is TurboTax, which is designed to track a trader’s activity across the crypto sector. Besides TurboTax, many other companies are working on solutions to aid with tax compliance.


Unlike other asset classes, crypto is not subject to the wash-sale rule which prevents investors from selling off all their losing investment to offset the loss against gains and keep their exposure by buying an identical asset within 30 days.

If the market is in a bear run, it might be a good idea to capitalize on those falling coins. For instance, if the price of BTC drops from $60K to $40K, it would be wise to sell off the coins and use the $20K loss to offset gains made in other coins. Shortly after, you can repurchase the BTC. However, this loophole might not be available in 2022 if Congress has its way.

Capitalize On Lower Brackets

One other strategy according to a CNBC report, is to sell an appreciated digital currency if one expects to pay a higher rate in the future. Depending on the particular person, they may qualify for a 0% tax rate. For instance, a married couple that files a joint taxable income of $80K or less could pay 0% capital gains tax for 2021 once they subtract the $25,100 standard deduction from their adjusted gross income. Someone who is under that threshold could sell crypto at a profit without paying any long-term capital gains tax.

Professional Assistance

Using tracking software is a good idea for day traders with thousands of trades to track a year. However, for bigger players with six or seven figures worth of crypto, they may benefit from engaging the services of a tax-planning expert. To ensure they receive the best advice, a crypto holder should ensure that they provide as much high-quality information as possible. 

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