The exciting thing about the crypto market is that the sentence:
“These are turbulent times for bitcoin and other cryptocurrencies”
has been true ever since the inception of bitcoin in 2009. And so whenever you are reading this article, the above sentence will most likely still be true.
The constant price changes and high volatility have led — and continue to lead to great investment opportunities, both to make and lose a lot of money. Since you need to declare gains and losses to the government and pay taxes even on Bitcoin gains, it makes sense to look at how you can reduce your personal tax burden.
This article is for you if…
- … want to get into the bitcoin and crypto scene, or
- … you already own bitcoin or other cryptocurrencies, and
- … you need to do a tax return for your crypto gains and losses, and
- … you would like to pay less taxes
1 — Check Historical Performances of Your Coins
The fundamental truth of taxation is pretty simple: You pay taxes on gains.
Gains are the difference between the amount of money that you receive when you sell your coin and the amount of money that you spent when you bought it.
Therefore, minimizing taxes is all about minimizing this difference. If you simply want to “buy” some FIAT and you are indifferent as to which coin you should sell, you can check out the price at which you bought your different assets.
You want to take $1,000 out of your portfolio but you are unsure which coin you should sell.
Imagine three months ago you bought one token for $500, which you could now sell for $1,000. You would make a gain of $500 but you’d have to pay taxes on those $500.
Now, you probably also have a token that you purchased for $1,500 a few months ago but it’s now worth only $1,000 because it has decreased in value compared to the date of purchase. If you sell this one, you still end up with $1,000 in FIAT, but you have actually “realized a loss”, with which you can offset some of your taxable gains at the end…