How Not To Pay Taxes on Crypto

There are MANY rumors floating on the internet that you don't have to pay taxes on your Crypto. While misleading, there are in fact ways to not pay taxes... At least as of right now.

December 10, 2021

Alright, this is a little bit of a jab in the title here.
So how are you going to get away without paying any taxes on your Crypto legally?

Become a HODLER

Well the easiest way is just not to sell your coins. If you take your Bitcoin and you hold it, you're a HODLer; you're not going to pay any taxes on that Bitcoin as it grows. It's a capital asset, just like a stock. Many wealthy elites have used this exact strategy to grow their wealth. Think about Jeff Bezos. Bezos just holds his Amazon stock (or most of it) indefinitely. If he needs to buy something, he borrows against his stocks. His stocks keep growing (ideally outpacing the interest), and the debt can get paid when he dies. That's how he pays less tax than many Americans, even though he's one of the wealthiest.

There's a reason that we have things like stepped-up cost basis and various tax strategies for stocks disposition. It's because you can get enormous differences between the cost basis of what you paid for it and its full market value. However, you don't have to pay any of those taxes until you actually sell the asset. So HODLing is an excellent way not to pay taxes.

TAX-LOSS Harvest

But let's say you want to be a mostly hodler. But you don't want to hold ALL of your Crypto. And you'd still like to try and hit that zero-tax bracket. Here's how you do it, wash sales.

For now, Crypto is not subject to the wash sale rule. This is super important; everything is timing in the crypto space. The "Build Back Better" plan did include a change to update wash sale legislation, but it has not passed Congress yet. Until that bill goes through, you can sell cryptocurrencies that are at a loss.

You sell and capture a loss if you are down on the position. You then repurchase that cryptocurrency back. You generate the loss on the crypto you sold and get to own the cryptocurrency still. You can use that loss to offset another gain. You can exit a position slowly with losses from your other crypto positions and pay no taxes. You will cancel out the gains on your Crypto from the position with the losses from the wash sale that you make. This strategy is called tax-loss harvesting. It's an advanced tax strategy, but it's definitely a very valuable thing to do with Crypto right now as it's not subject to a special rule that disallows this for stocks and bonds. Hopefully, this is helpful, many more tips to come.

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