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5 Tips For Minimizing Your Bitcoin and Crypto Taxes

Here are a few things you can do to minimize your bitcoin and cryptocurrency gains and, in turn, your tax liability.

The post 5 Tips For Minimizing Your Bitcoin and Crypto Taxes appeared first on Bitcoin Magazine.

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W2s and 1099s have been sent out and tax season is officially in full swing here in the United States. For those operating in the world of bitcoin or altcoin investing, this time of year can have added stress as reporting gains and losses for your crypto trades can be a cumbersome task. While the reporting can be difficult at times, there are many things you can do to help minimize your bitcoin and other cryptocurrency gains and, in turn, your tax liability. This article discusses a few of these tips and tricks. 

Open a Crypto 401(k) or IRA Retirement Account

Retirement accounts like IRAs and 401(k)s are popular vehicles used in the world of investing. These types of investment accounts come with tax incentives and can help shield profits from the tax man. By using a retirement account like a self-directed IRA to purchase cryptocurrencies, you can defer paying tax (sometimes you can even pay none at all). 

This is contrary to using a traditional cryptocurrency exchange where the income generated from selling or trading crypto is taxed during that same year. Cryptocurrency IRAs can be an effective tax reduction tool — especially if you believe in the long-term value of cryptocurrencies. 

Keep in mind that there is a deadline to open and contribute to your self-directed cryptocurrency IRA. The period in which you can make a contribution for a given tax year is from January 1 of that year until you file your tax return. Contributions cannot be made after your filing deadline (i.e., April 15 of the following year).

Look into Using a Specific Identification Costing Method

After the new IRS cryptocurrency tax guidance came out in October 2019, it clarified that specific identification costing methods could be used when calculating your gains and losses for your cryptocurrency transactions provided that you had records to specifically identify your crypto. 

This sounds a lot more complex than it is. Essentially, pre-2019, most bitcoin and crypto investors were using the common First In, First Out (FIFO) calculation method to calculate their gains and losses from their trades (the cryptocurrencies that you bought first are sold first) because the IRS had not yet specified whether specific ID was allowed. Now that the new guidance makes this clear, specific identification is a great way to reduce your gains.

In using this strategy, you want to specifically identify and “sell” the cryptocurrencies that you bought at the highest price first. For active traders, this slight change can lead to huge tax savings. 

Cryptocurrency tax calculators are especially good at applying these tax minimization algorithms like Highest In, First Out (HIFO) and Last In, First Out (LIFO). 

However, before you can use a specific identification method, you have to be able to specifically identify a unit of cryptocurrency as the IRS outlines:

To specifically identify a unit of cryptocurrency, you must have records of the following information:

  1. The date and time each unit was acquired;
  2. Your basis and the fair market value of each unit at the time it was acquired;
  3. The date and time each unit was sold, exchanged or otherwise disposed of; and
  4. The fair market value of each unit when sold, exchanged or disposed of, and the amount of money or the value of property received for each unit.

If you have this data for your transactions, you are able to use specific identification methods like LIFO or HIFO which can drastically lower your cryptocurrency capital gains taxes.

Hold for Longer Than One Year

Similarly to the world of investing in stocks, holding onto a cryptocurrency investment for longer than one year pushes you out to the long-term capital gains tax rates. These are typically much lower than the short-term capital gains tax rates which apply when you have sold or traded out of your investment after holding onto it for less than one year. 

Additionally, if you are able to identify your cryptocurrencies specifically, you can take advantage of this strategy further. You can specify that the coins you “sell” are the coins that you have held for longer than one year’s time. This will qualify you for the long-term capital gains rate and will help reduce your overall tax liability!

Invest Your Crypto Capital Gains into a Qualified Opportunity Zone Fund

Opportunity Zone Funds became part of the tax code with the Tax Cuts and Jobs Act of 2017. The IRS defines an Opportunity Zone as an “economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” Put simply, the communities on the receiving end of these funds benefit from revitalization while investors gain tax benefits from investing.

When an investor sells an asset that produces capital gains, he or she can roll any amount of the gain into an Opportunity Zone Fund within 180 days of the sale. The investor can then defer capital gains taxes on that amount until December 31, 2026, or until the Opportunity Zone Fund investment is sold or exchanged (whichever comes first).

For bitcoin investors who have large amounts of capital gains, rolling these gains into an opportunity fund investment can be a powerful strategy for reducing your tax bill. 

Use Cryptocurrency Tax Software

Finally, one of the best ways to fully maximize your tax savings on your crypto investments is to plug all of your trade history into a cryptocurrency tax software. Bitcoin and crypto tax software platforms have built-in tools to analyze and optimize your gains and losses reporting for tax minimization. Importing your trade history is as easy as connecting your cryptocurrency exchange accounts. Once your historical trades are in, these programs will then generate your tax reports with the click of a button.

This is a guest post by David Kemmerer, co-founder of CryptoTrader.Tax. Views expressed are his own and do not necessarily reflect those of Bitcoin Magazine or BTC Inc. This article is for informational purposes only and should not be considered tax or accounting advice. Always seek guidance from a tax accounting professional when assessing your individual tax situation.

The post 5 Tips For Minimizing Your Bitcoin and Crypto Taxes appeared first on Bitcoin Magazine.

Source: https://bitcoinmagazine.com/articles/5-tips-for-minimizing-your-bitcoin-and-crypto-taxes?utm_source=rss&utm_medium=rss&utm_campaign=5-tips-for-minimizing-your-bitcoin-and-crypto-taxes

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Indian Olympic Medal Winners to Get Free Bitcoin (BTC) and Ethereum (ETH)

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The cryptocurrency platform Bitbns intends to open a systematic investment plan (SIP) in digital assets for Indian athletes who win medals at the ongoing Tokyo Olympics. The exchange will reportedly grant around $2,700 in crypto for gold medal winners.

‘Faster, Higher, Stronger’ And Earn Crypto

The Economic Times reported that Indian athletes at the Olympic Games could receive cryptocurrencies as a gift if they manage to win a medal at the tournament in Tokyo.

The trading venue that will reportedly provide the offer is Bitbns. The first athletes that can get cryptocurrency exposure for free are the winners Mirabai Chanu and PV Sindhu. The former won a silver medal in 49 kg women’s weightlifting while the latter acquired bronze in the women’s singles badminton at the Tokyo Olympics.

Bitbns plans to roll out a SIP account and grant nearly $2,700 in digital assets for Olympic champions, $1,350 for silver medal winners, and $675 for bronze medalists. It will transfer the amount into their accounts, and after completing the Know Your Customer (KYC) norms, the athletes will have exposure to cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).

The trading venue explained that it would structure the SIP for a 3-5 year period, and thus the medal winners will be able to generate profits in the long term through Bitbns. Gaurav Dahake – the Chief Executive Officer at the platform – noted:


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“Bitcoin and Ethereum have been the best-performing assets in the last decade, and have given exceptional returns and we aim to get our winners indulge in this rewarding journey.”

Indians Love Cryptocurrencies

According to a recent research, Indian residents increased their digital asset investments from $200 million in 2020 to $40 billion for the first six months of this year, indicating that their appetite for cryptocurrencies surged significantly.

What is even more impressive is that Indians, who are well-known gold admirers, started switching their investment strategies from the precious metal to virtual currencies. A local investor explained:

“I would rather put my money in crypto than gold. Crypto is more transparent than gold or assets and yields higher returns in a shorter period of time.”

The survey added that the number of people who trade cryptocurrencies in India is 15 million. It significantly surpasses a well-developed country such as the UK, for example, where 2.3 million individuals have entered the market. Sandeep Goenka – the co-founder of the platform ZebPay – revealed the reasons why the second-most populated country saw this massive increase:

“They find it easier to invest in crypto than gold because the process is so much simpler. You go online, you can buy crypto, you don’t have to verify it, unlike gold.”

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Source: https://cryptopotato.com/indian-olympic-medal-winners-to-get-free-bitcoin-btc-and-ethereum-eth/

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Coinbase halts Bitcoin SV trading after yet another 51% attack

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Bitcoin SV is in trouble once again after Coinbase announced that it will be halting BSV trading on the platform. This update came on the back of a string of attacks the network has been facing since late June. As per the announcement made by the exchange,

“Due to the 51% attack that has occurred on BSV today we are stopping all BSV trading.”

Bitcoin SV was the target of a massive 51% attack early on Tuesday, an attack which was called “the largest since launch” by Blockchair developer Nikita Zhavoronkov. He further claimed on Twitter that the reorganization was 100 blocks deep and wiped out 570k transactions.

The attack was first brought to the community’s notice by CoinMetrics’ Lucas Nuzzi. Arguing that “some serious hashing power” was unleashed on the network early on Tuesday, he revealed that up to three versions of the chain were being mined simultaneously across pools.

Coinmetrics later confirmed that the firm’s own blockchain security monitoring tool FARUM identified the attack.

The Bitcoin Association also confirmed the incident on Twitter, recommending node operators to mark the fraudulent chain as invalid. It’s worth noting, however, that at the time of writing, the Association had released yet another statement on the same.

It said,

“…. believes that this is the same attacker that previously initiated block re-organisation attacks against the BSV network on June 24 and July 1, 6 & 9, 2021.”

Coinbase’s action made waves in the community. However, such steps are perhaps routine for the network now. In the past, BSV has been dropped by top exchanges like Gemini and Binance. It also saw several exchanges block withdrawals and deposits for the asset as liquidity providers suspended access to the token’s liquidity. This was preceded by more attacks in the last week of June and the first week of July.

As far as Coinbase is concerned, the exchange is yet to reveal when it might restart trading services for Bitcoin SV. With many in the community at sixes and sevens, it’s unlikely it’s going to be anytime soon.

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Source: https://ambcrypto.com/coinbase-halts-bitcoin-sv-trading-after-yet-another-51-attack

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Looking To Pull An El Salvador, Spain Considers Bill To Allow Mortgage Payments In Crypto

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Looking To Pull An El Salvador, Spain Considers Bill To Allow Mortgage Payments In Crypto

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Cryptocurrency and blockchain are becoming quite mainstream as of this year and it’s likely that just about any financial transaction will be able to be completed via the use of crypto in the next few years. Of course, there are bodies pushing against the integration given the lack of regulations and the fact that it could help finance illicit acts.

However, the crypto wave is continuing to grow despite all of the recent adversity. And, according to Spanish paper 20 Minutos, Spain could begin to allow persons to pay their mortgages with crypto pretty soon.

The publication reports that Spanish lawmakers are perusing a proposal that would see to the above. The Digital transformation Law, as it’s called, would make it so that crypto and blockchain become legitimized, while tax incentives are being considered for institutions keen on working under the artificial intelligence umbrella, which would include blockchain tech.

Spain’s incumbent People’s Party is intent on having the country’s banking infrastructure catch up to the times in terms of tech and will promote the use of digital currencies, as well as various other transformative technologies. The proposal suggests that the country’s whole mortgage system should undergo reform, in addition to having crypto payments possible.

El Salvador Took The Lead

This comes on the back of El Salvador’s move to accept bitcoin as legal tender. The Central American nation is very pro-crypto in such regard and it appears they have set the stage for other countries to naturalize digital assets, so to speak.

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Where Spain is concerned, the current proposal advises that banks use blockchain as a means of operating the mortgage system while making use of smart contracts for insurance.

“Introduction into the mortgage system – it also proposes that banks use Blockchain technology to manage mortgages, insurance and speed up compensation – it proposes to extend it to insurance policies, with ‘smart contracts’ with conditions depending on the procedures to be followed, the verification processes and potential incidents.“

El Salvador making bitcoin legal tender was a huge move and we aren’t yet to see the full scope, although the country’s population stands at just 6.5 million so they aren’t expected to have that great of an impact on a worldwide scale. Spain is a different case, however.

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Source: https://zycrypto.com/looking-to-pull-an-el-salvador-spain-considers-bill-to-allow-mortgage-payments-in-crypto/

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