The market is surging, and with profits come tax obligations. For investors, finding ways to optimize their crypto tax strategies is key to maximizing profits and minimizing tax liability. Here are five powerful hacks to make the most of your crypto taxes before the end of 2024.
1. Smart Losses with Tax Loss Harvesting
Tax loss harvesting is a valuable year-end strategy, allowing you to offset capital gains by selling underperforming assets. For example, selling cryptocurrencies at a loss can reduce the tax burden from gains on other assets.
While this technique is common in traditional investing, the high volatility and unique tax rules of the crypto market make it especially valuable for crypto traders.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Access Blockpit’s Crypto Tax Optimizer for seamless Tax Loss Harvesting, with visual insights into unrealized gains, tax-free assets, and an upcoming Sell Simulation feature - available exclusively at Blockpit.</p></div></div></div>
Be aware of specific tax rules: The wash sale rule prohibits investors from deducting a loss on the sale of a security if they buy back the same or a substantially identical asset within a specified timeframe, usually a 30-day window before or after the sale.
In the U.S., this rule currently does not apply to cryptocurrencies, though changes may be on the horizon. To stay compliant, avoid repurchasing the same assets immediately. In the UK, the “bed and breakfast” rule similarly restricts repurchasing assets within 30 days, which can affect your ability to claim tax benefits.
Find all the details on this topic in our guide: Crypto Tax Loss Harvesting
2. Hold for Lower Tax Rates
One of the most effective ways to minimize crypto taxes is to hold your assets for more than one year to qualify for long-term capital gains tax rates, which are typically lower than short-term rates.
In the U.S., short-term capital gains (on assets held for under a year) are taxed as ordinary income, ranging from 10% to 37%. However, if you hold your cryptocurrency for over a year, long-term capital gains tax applies, which is significantly lower at 0%, 15%, or 20%, depending on your income bracket. This can lead to substantial tax savings over time.
European countries such as Germany, Belgium, Malta or Cyprus impose steep taxes on short-term crypto gains but reward patience with significant tax breaks for long-term holdings. This approach encourages wealth building over speculative trading. Lean more in our Crypto Tax Report 2024.
3. Track Every Transaction with Crypto Tax Software
Detailed records of every transaction are essential for accurate tax reporting and compliance. With Blockpit’s free portfolio tracker, you can easily document each transaction, track your portfolio, and import data seamlessly.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">As the year ends, take some time to ensure your portfolio is fully updated and includes all transactions.</p></div></div></div>
Having well-organized records not only simplifies tax filing but also protects you from potential back taxes if authorities request past tax declarations.
4. Use Tax Allowances and Exemptions
Leveraging tax allowances and exemptions is a powerful way to lower your taxable income and reduce the overall tax you owe on your crypto gains. In many countries, allowances provide a buffer of untaxed income or capital gains that can be especially valuable for crypto investors.
For instance, in the UK, there’s a Personal Allowance, allowing you to earn up to 12,570£ before income tax kicks in, as well as a Capital Gains Tax (CGT) allowance of 3,000£ for 2024, which applies to profits from asset sales. This means you can offset gains from cryptocurrency against these allowances to minimize your tax burden.
In the U.S., the IRS offers a standard deduction (13,850$ for single filers in 2024) to lower taxable income, as well as specific exclusions for certain asset sales, like up to 250,000$ (500,000$ for married couples) of capital gains on a primary residence. When applied to crypto, these allowances can offset gains from crypto sales, helping you save on taxes.
5. Seek Expert Guidance on Crypto Taxes
Crypto tax regulations are evolving fast, and a professional tax advisor with expertise in digital assets can help you stay compliant while uncovering personalized tax-saving opportunities. Blockpit’s network of crypto tax professionals is available to answer questions about tax law, assist with your Blockpit account, and provide one-on-one support if needed.
