Do You Know How to Cut Your Crypto Taxes by 21%?

5 min readJul 9, 2020


Cutting your tax bills is always desirable. But it’s even more important to do it the right way to avoid any potential trouble with the IRS. If you are a crypto holder, you know perfectly well that trading cryptocurrencies is a risky business because the value of crypto coins fluctuates wildly. It’s simply impossible to foresee when the next to-the-moon price spike may happen to your favorite coin. The same is almost true for sudden price downfalls that can leave you nearly bankrupt! But it’s good that the IRS is tolerant of risk-taking investors. You have a few legal ways to save on your taxes, especially if your crypto investments have lost value since the time you acquired them.

Given that the value of the crypto assets is so volatile, you have a great chance to reduce your taxes by 21% or even more! Let’s review a few tips on how to save a pile of cash on your taxes and never make the IRS mad at you in the process!

1. Tax Loss Harvesting: Save Up to $3K on Taxes!

No need to overpay in taxes when your crypto assets lose value. You’d better harvest your capital losses and save your cash! Since tax loss harvesting is a completely legal technique, it’s a good way to significantly reduce your total tax bill and partially remove the tax burden from your family budget, even when it comes to ordinary income (you can offset up to $3,000 of your taxable income). Here’s how it works.

When you’re holding some devalued crypto tokens, you can sell those assets off to realize a loss and thus correct the capital gains you obtained earlier in the given tax year. (Or if you have no capital gains, then deduct it from your other income, such as your salary.)

For example, if you buy some crypto, let’s say for $10k, and a few months later you sell it for $9k, then you realize $1k capital losses. If you have any gains from other capital investments, such as bonds, gold, real estate, etc, you should deduct $1,000 from that amount first to calculate your net capital losses or gains. If you don’t have the capital gains, the loss gets deducted from the rest of your income. Let’s say your annual salary is $46k. Then your taxable income reduces to $45k for the year. You win!

If your losses surpass $3,000 and are not covered by other capital profits for the year, you can bear the said losses forward to future tax periods and offset those taxable gains at their cost. That’s a double-win! Another good thing about crypto is that it doesn’t fall under the IRS’s Wash Sale Rule (as it is a property), so tax loss harvesting works perfectly well for it.

ZenLedger makes the tax harvesting process really fast, simple, and accurate. It automatically aggregates your transactions across all your wallets and exchanges, so it helps you find tax loss harvesting opportunities with a bird’s-eye view. You can scan your records from time to time to check out what opportunities are available and then selectively review them as you and/or your accountant see fit to write off income.

2. Sharing is Saving: Transfer your Crypto as a Gift!

Did you know that gifts under $15,000 per year are not taxed by the IRS? You can give away your crypto assets up to the mentioned value to your trusted friends and family members to decrease your tax liability in crypto coins without selling them. Remember that the gift receivers will be obliged to pay tax if they use, sell or trade the crypto coins they got from you. If the gift value exceeds $15,000, the giver should fill out a gift tax return using Form 709.

Another similar way to get tax deductions with your crypto is donating it. Donations are not only good to support some projects or charity initiatives, but they also allow you to save on taxes. You can donate your crypto assets, and you’ll get a deduction for these donations on Schedule A of Form 1040. The amount of the deduction relates to the period in which you hold your assets. If you donate a crypto-coin that you keep for over one year, the deduction is equal to the fair market value at the time of the donation.

3. HODL. The IRS Rewards Patience.

Hold your cryptocurrency longer than one year and enjoy much lower taxes. The IRS encourages long-term investors, not speculators, and it’s a wise approach! It means that the capital gains rate is lower for property that is held for over a year. Selling crypto coins and tokens that you have held for 12+ months may be free of taxes in certain cases because long-term capital gains are taxed at preferential rates (the tax rate depends on your income level and filing status). Short-term capital gain rates are between 10% and 39.6%, while long-term capital gain rates fall between 0% and 20% depending on your income.

4. Hire a Tax Professional. Is it Expensive?

Hiring a CPA sounds like obvious advice, but it’s not as simple as one might think. A qualified accountant can surely look to your personal situation and help you save cash based on the specific details of your transactions, amount of income, tax history, etc. That kind of help can be expensive, but if your crypto holdings are large enough, you definitely need a professional who can help you sort the details and avoid even more costly penalties from the IRS due to inaccurately accounted crypto (serious cases of tax evasion can be even prosecuted by law enforcement). Unfortunately, it’s not easy to find an accountant who is a true expert in cryptocurrency and related matters, and if you find one, they’ll surely offer you a high price tag for their services.

Happily, ZenLedger has a few readily available plans for large crypto holders, traders, or miners. Those plans include hours of assistance from crypto accounting professionals who will help you define issues and opportunities in your crypto assets, assist you in paying your taxes correctly, and save you as much as possible at a reasonable price!

Originally published at on July 9, 2020.




Simplifying DeFi and cryptocurrency taxes for investors & tax professionals.