Essential Crypto Tax Planning Strategies for Investors

Cryptocurrencies are becoming popular among investors nowadays due to the many advantages they provide as decentralized systems that are not regulated by government authorities. Crypto is a secure digital currency encrypted via cryptography that is fast and transparent, backed by blockchain technology. Since cryptocurrencies are considered property, crypto taxation can become quite complicated to handle on your own. As certain as it is for the sun to rise every day, there is no way to avoid paying your crypto taxes. By getting help from a professional crypto accounting firm, crypto tax planning can be done efficiently to minimize tax liabilities.

1. Advantages of Using Cryptocurrencies

One of the biggest advantages of using crypto is the transactional speed. You can move assets or funds in a matter of minutes. If you go through traditional financial institutions, these transactions take several days. Even a wire transfer takes at least 24 hours.

Plus, crypto transactions ensure a level of privacy that financial institutions do not offer since there is no third-party intervention. Instead of personal information, crypto investors use an identifier and a wallet address for transactions. This privacy does not reduce the transparency of transactions at all. All crypto transactions can be viewed on the blockchain. So, it is less prone to corruption than traditional financial systems.

In addition, crypto is secured by cryptography with private keys for crypto wallets that only the owners have access to. Further, all transactions are secured via blockchain technology. In this system, a decentralized network of computers, or nodes, validates each transaction, ensuring transparency and immutability. This makes cryptocurrency highly secure as it has a dual-layered security framework.

What’s more, crypto can be accessed easily via a computer or a smartphone with an internet connection. You don’t have to go through background checks or credit checks and no identification is required as with traditional financial systems.

2. Tax Planning Strategies Used by Crypto Accountants

Crypto accountants use several strategies to minimize tax liability by leveraging their knowledge of crypto taxation. For example, you can take advantage of long-term holding periods. This means if you hold digital assets like crypto for more than a year, tax rates are reduced. If you sell crypto within a year of acquisition, you are subject to short-term capital gains tax which can range from 10% to 37% depending on the income bracket.

Another way to plan taxes effectively is to implement tax-loss harvesting. This is when underperforming cryptocurrencies are sold at a loss to offset gains from other investments. The IRS allows up to $3,000 in net capital losses to be deducted from ordinary income each year, with any excess carried forward. You need a crypto tax expert to plan tax solutions since adhering to wash sale rules is important. In other words, you can’t claim losses on assets that are repurchased within 30 days of the sale.

3. Crypto Tax Planning On Your Own

Although tax planning strategies can be used to minimize tax liability, planning taxes on your own is quite risky as you could end up not being compliant with tax laws and regulations. Crypto tax accountants record each crypto transaction carefully and analyze the best way to implement tax planning strategies without causing any risk to your future crypto investments.

Consult a professional crypto tax accountant at OnChain Accounting to create a proactive tax plan tailored for the next tax season. By doing so, you can save money and manage your crypto investments confidently with long-term financial goals that are guided by an expert in the complex field of crypto taxation.