Did you know that you can save tax on Digital Currency gains using simple techniques? Keep reading this blog to find out how!
Digital Currencies like Bitcoin and Dogecoin are very trendy now. Especially in the past few years, it has gained a lot of popularity. Due to the trust and popularity more and more people are investing in digital currencies. They believe that this is the future.
While thousands of people are making millions of dollars from digital currencies, the govt. has applied tax on them. This makes it harder for a person to invest more when his previous gains are being taxed.
Though there are some simple techniques to save tax on digital currency gains.
In this blog, we are going to share a few of them. You can use these techniques and save a lot of money. So if you are interested then keep reading this blog!
Why are Digital Currencies Taxed?
The basic reason that digital currencies are taxed is that they are considered property. Like any other investment, you have to pay cryptocurrency tax as well. According to IRS, Digital currencies are a capital asset. Anyone who owns it or deals with it will pay tax on it.
The tax amount varies according to the time that you held the digital currency. There is different tax amount for short-term holdings and different for long-term holdings. If you are still confused about holding cryptocurrencies for the short-term and long-term. Don’t worry, just keep reading this blog. We are going to discuss the best ways to minimize taxes on your cryptocurrency.
Best Simple Techniques to Save Tax on Digital Currency Gains
There are a lot of tricks that people use to get away without giving any taxes. Some of them are legal and others are illegal.
The techniques to save tax on digital gains that we have shared are completely legal and allowed. You can use them for your good without any issue. So now, let’s have a look at the methods!
1. Hold For a Longer Time
The first method that can save you from taxes is to hold your digital currency for a longer duration. When you hold your cryptocurrencies for less than a year, they are considered short-term holdings. The taxes apply on short-term holdings are greater than on long-term holdings.
So if you keep your digital currency for more than a year, it will be considered a long-term holding property and you will have to pay lesser taxes than before. Many people don’t use this method and they keep crypto for the short term as it is a volatile market. So the next time you buy a cryptocurrency plan for a long-term holding.
2. Sell Your Digital Currency in a Low-Income Year
The next technique that you can use to save taxes is to sell your digital currency in a low-income year. This can genuinely save you taxes.
The best part is that this technique allows you to save taxes on both short-term and long-term holding. So if you know that this year is a low-income year, you can get cryptocurrency for the short-term and then sell it with less tax applied.
You have to decide the right time before you apply this method. If you succeed you can save a lot of tax money and use it somewhere else.
3. Invest with a SIDRA
Investing with a Self-directed Individual Retirement Account can also save you taxes. You can pay these taxes when you are retired and you have a low-income year. This is one of the smartest ways to save taxes on digital currencies.
4. Try to Reduce Your Taxable Income
If you have a lot of taxable income then you should reduce your taxable income. Many people around the world reduce their taxable income to save taxes on digital currency. You can also do that. If you are wondering how can I reduce my taxable income? There are a lot of ways to do that.
The top ways that people use are putting money in health savings accounts. You can even donate your taxable money to a charity if you like. This can save you a lot of tax money on digital currency.
But all of it depends on the type of taxable income that you have. For detailed analysis, you may consult a professional who can analyze your situation and give you the best advice.
5. Move to the Low-Tax States
Did you know that you can save taxes by moving to another state? Yes, there is a difference in tax amount when you move to another state. Some states allow low taxes or even no taxes on digital currency and properties in general.
You can save a lot of money in this way. So if you are a full-time crypto investor you can move to another state for a better tax situation.
Cryptocurrency is a booming industry and it has become a billion-dollar industry for some time. Millions of people are investing in digital currency and they say that it is the future. Like any other property, the IRS applies taxes on cryptocurrencies. So in this blog, we have shared the best simple techniques to save tax on digital currency gains.