Cryptocurrency is a digital asset that greatly benefits businesses and individual investors in improving their financial stability due to the large number of advantages it offers. However, driving profits via cryptocurrencies requires proper crypto tax planning strategies. Most often, crypto accountants who specialize in this field ensure that your tax burden is reduced while staying compliant with ever-evolving regulations. This article discusses the main tax planning strategies leveraged by crypto accounting services to help minimize your crypto tax liabilities.
Tax Loss Harvesting
One of the most effective ways to save on taxes is through tax-loss harvesting. The strategy applied revolves around selling underperforming digital assets at a loss to offset taxable gains made on other crypto or traditional investments.
For example, if you sell an underperforming asset with a $5,000 loss during an occasion where you have also made a $10,000 taxable gain on another crypto trade, your taxable gain is reduced by $5,000. In this manner, ordinary income can be offset up to $3,000 in net losses to lower your tax bill.
With the help of crypto tax accountants, you can identify opportunities for tax-loss harvesting while ensuring that you comply with relevant IRS guidelines. The additional benefit that you gain from hiring a crypto accountant is that accurate financial records are maintained for your business to prove these transactions during tax filings.
Long-Term vs. Short-Term Gains Strategy
Did you know that the length of time you hold cryptocurrency can also impact your tax rates? This is why your tax planning should be done strategically with the help of crypto accounting services.
Crypto sold within one year of acquisition is subject to short-term capital gains tax. This tax rate can range from 10% to 37% depending on your income bracket. However, assets held for more than a year qualify for long-term capital gains tax. This tax rate is much lower, ranging from 0% to 20%.
Crypto tax accountants who provide crypto accounting services advise you on which digital assets to hold longer to minimize tax liabilities. They also assess the best time to sell assets based on their fair market value and holding periods. You can get these tailored recommendations to reduce tax obligations only if you hire expert services from a cryptocurrency tax accountant near me.
Deductions with Mining and Business Expenses
If you are a crypto miner or business engaged in crypto transactions, you can reduce your taxable income by deducting expenses related to cryptocurrency activities. Try consulting a cryptocurrency tax accountant near me who can identify eligible deductions. For example, costs for mining equipment in terms of hardware, software, and maintenance can be reduced. You can also reduce energy bills that are associated with crypto mining operations. A cryptocurrency tax accountant near me also advises on how to prepare for tax filings with proper documentation so that you can avoid any costly penalties.
Conclusion
Tax planning is an essential step for anyone involved in cryptocurrency. If you don’t leverage strategies such as the ones mentioned above, minimizing tax liabilities is not practical. However, it is not advisable for you to attempt these tax planning strategies without advice from a professional crypto accountant as it is important to remain compliant with tax laws while optimizing your savings.
