Taxes, whether corporate or personal tax, never seem to stop coming, leaving many taxpayers wondering how they can avoid taxes legally. It gets worse if you’re a cryptocurrency trader, because sometimes, cryptocurrency and NFT investors are surprised by unexpected tax bills.
Most investors don’t understand how cryptocurrency taxes work and how much their trading activities should be taxed.
If this sounds like something you’ve struggled with, you need to take immediate action to rescue your investments. Here are four legal approaches to minimizing or avoiding some cryptocurrency taxes for optimal returns.
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Learn How Cryptocurrency Taxes Work
To reduce your tax bills legally, you’ll first need to know how the crypto taxes work so you don’t end up slashing legal taxes you should pay.
The best way to do this is to work with a tax expert who will check your current tax condition and advise you from there.
They’ll also help you know how much of your crypto activities are taxable, so you can know what activities to major in and which ones to avoid.
While you can learn some of these insights alone online, it’s important to verify whatever you’ve learned with an expert for successful tax reduction within set legal parameters.
Keep Excellent Records
Taxes and excellent records go hand-in-hand. You’ll need accurate accounting and transaction records to calculate your crypto taxes correctly and take advantage of available deductions for reduced taxes.
Some important records you should keep for effective taxation include the date you bought or gained the cryptocurrency, the purchase price, and the price and date you sold it.
With good records, accountants can advise you effectively on maximizing your deductions and eliminating mistakes that could raise interest charges or lead to penalties.
Hold Your Investment For More Than A Year
When you hold your crypto investments for more than a year, they qualify for consideration as long-term investments. In taxation, long-term investments are generally taxed at a lower interest rate than short-term investments.
Your long-term crypto assets can only attract up to 20% of the maximum tax rate, while short-term capital gains can attract as much as 37% in tax collection.
Holding your crypto coins for a long time is a simple yet effective approach to minimizing crypto capital gains tax and maximizing revenue.
Sell At A Loss
While your primary goal is to make profits with every crypto sale you make, sometimes the market dynamics don’t favor positive selling.
In such scenarios, many investors would want to hold on a little longer to study the markets, but it can take a long time before prices rise again. To avoid selling at an even lower price, it’s best to sell immediately when it falls to a set price margin.
Selling at a loss can help you gain some tax relief during taxation and keep your investment hopes alive even in the low months.
Since this is the same strategy applied in the equities and stock markets for decades, you can find relevant experts for advice on when to sell at a loss and when to hold for an approaching profit sale.
Knowing how to avoid crypto taxes legally can help you save money and boost your long-term ROI. With these tips, you’re equipped with the best legal tips for avoiding crypto taxes and optimizing returns.
Disclaimer: The above references an opinion of the author and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Invest responsibly and never invest more than you can afford to lose.
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