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8 Ways to Legally Avoid Paying Tax on Crypto in 2024

Kane Pepi
Last updated: | 13 min read
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
how to avoid tax on crypto

Crypto investments are subject to capital gains tax in most jurisdictions. Fortunately, there are various ways to reduce or even avoid crypto taxes completely. 

In this guide, we explain how to avoid crypto taxes legally, covering eight effective methods.  

8 Methods to Legally Avoid Bitcoin Taxes

Investors exploring how to avoid crypto tax can consider one of the eight methods listed below:

  1. Purchase Products on Crypto Emporium
  2. Gift Bitcoin to Another Person
  3. Invest via an IRA
  4. Utilize Capital Gains Tax Allowances
  5. Tax-Loss Harvesting
  6. Make a Donation
  7. Never Sell
  8. Avoid Staking and Other Yield Methods 

How to Not Pay Taxes on Crypto – Full Analysis

Now let’s explore how to avoid crypto taxes in much more detail. 

1. Purchase Products on Crypto Emporium

The first option to consider is to purchase products on Crypto Emporium – an online marketplace that sells everything from cars and luxury watches to real estate, electronics, and artwork. Before we explain how Crypto Emporium works, we should note that spending Bitcoin and other digital assets is not a way to avoid tax. 

This is because using crypto to make purchases triggers a taxable event. That said, spending crypto rather than cashing out can make sense. For example, let’s suppose that an investor holds Ethereum. We’ll say the investor spends Ethereum when it is priced at $1,400. We’ll then say that a week later, Ethereum is priced at $1,700. 

Crypto Emporium online shop

By using Ethereum to buy products instead of holding, the investor will pay less capital gains tax. In another example, let’s say that the investor bought Ethereum at $4,000, but it is now worth $2,000. In this scenario, the investor can buy products with Ethereum and avoid capital gains tax on this trade. This is because the trade yielded a loss. 

Those wishing to deploy this strategy will find every product imaginable on Crypto Ethereum. For example, real estate is one of the best things to buy with Bitcoin on Crypto Emporium. This includes houses, apartments, villas, plots of land, and much more. Over 40 countries, including real estate in Asia, the US, South America, Europe, Australia, and the Middle East, are supported.

Crypto Emporium luxury watches offering

Another alternative investment product sold on Crypto Emporium is luxury watches. When buying watches with Bitcoin, collectors will find timepieces from Richard Mille, Rolex, Cartier, TAG Heuer, Patek Philippe, and many others. Looking to buy a car with Bitcoin and other cryptocurrencies? Crypto Emporium lists hundreds of vehicles, including cars, motorbikes, and vans. 

Brands include Tesla, BMW, Mercedes-Benz, Lamborghini, Bugatti, Ford, Fiat, Honda, and many others. Crypto Emporium also lists everyday items, such as smartphones, headphones, TVs, cameras, and other electronics. Additional product categories include artwork, sports equipment, online courses, travel accessories, and designer clothing. 

Crypto Emporium luxury car offering

In terms of payments, Crypto Emporium accepts Bitcoin and many of the best altcoins. This includes Litecoin, Dogecoin, Dash, Ethereum, and others. Buyers can choose their preferred product and transfer the tokens to Crypto Emporium’s wallet. The marketplace will then ship the product to the stated address. 

Crypto Emporium delivers to over 125 countries, and shipping fees are very competitive. Buying a Rolex with BTC, for example, averages $100 in shipping fees, including insurance. All purchases on Crypto Emporium are eligible for 4% cashback. This is paid in crypto tokens and distributed to the buyer’s wallet 30 days after making a purchase. 

Check out our Crypto Emporium review for more information about this top-rated retailer.

2. Gift Bitcoin to Another Person

Investors looking at how to avoid crypto taxes completely might consider gifting tokens to another person. Rules on gifting Bitcoin to avoid tax will vary from one country to another. But in the US, for example, the IRS allows up to $17,000 in tax-free gifting. This means that the investor can avoid paying capital gains tax by sending crypto to somebody else. 

Not only that, but the recipient will not be taxed either. Capital gains tax will, however, be payable once the recipient sells the crypto. The cost basis on the capital gains will be based on the price of the crypto assets when it was received. It is also possible to gift more than $17,000 in 2023. This is because US residents have a lifetime gifting allowance of over $12.9 million. 

IRS website

As such, anything above the $17,000 annual limit can be taken from this allowance. Many other countries also have gifting allowances in place. For example, crypto investors in the UK can gift up to £3,000 in 2023. Australian authorities are much more generous, as there are no gifting limits at all. This makes this strategy ideal for Australians exploring how to avoid crypto taxes. 

3. Invest via an IRA

Individual retirement accounts (IRAs) are also ideal when assessing how to avoid crypto taxes legally. In the US, online brokers offer IRAs which come with annual limits of $6,500. Those ages over 50 can contribute $7,500. There are two types of IRAs available – Roth and traditional. Roth IRAs allow investors to contribute after-tax dollars. 

This means that the tax has already been paid via the investor’s salary. In turn, the investor can make tax-free withdrawals from their IRA at the age of retirement. Traditional IRAs allow pre-tax dollars. This means that the investor can make larger contributions, as no tax is paid on the income. However, withdrawals from a traditional IRA will be taxed. 

Bitcoin IRA website

There are dozens of online brokers in the US that offer IRAs. But do note that very few permit crypto investments in an IRA plan. Instead, investors will need to use a specialist broker. Bitcoin IRA is a popular option. It supports over 60 cryptocurrencies, including some of the best utility tokens. Various crypto retirement accounts are offered, including IRAs and 401(k)s. 

4. Utilize Capital Gains Tax Allowances

Those wondering how you avoid tax on crypto should also explore whether their country of residence offers capital gains allowances. This allows investors to cash out a certain amount of crypto each year without needing to pay taxes on the profits. For example, the UK has a 2023 capital gains tax allowance of £6,000. 

In this scenario, let’s say an investor bought £10,000 worth of crypto, which is now worth £25,000. If the investor cashes out the entire amount, they would need to pay capital gains tax on £9,000. This is because the profit element of the sale is £15,000 and the investor gets £6,000 in tax-free allowances. 

Gov.UK capital gains tax webpage

However, by cashing out just £6,000 – no tax is payable at all. This shows that capital gains tax can be avoided by being strategic with sales. Many other countries have capital gains tax allowances. For example, Australian residents will receive a 50% reduction on capital gains tax if the investment was held for at least 12 months.  

5. Tax-Loss Harvesting

Another popular option when exploring how to pay less tax on cryptocurrency is tax-loss harvesting. While somewhat complicated, the process requires investors to sell some of their cryptos at a loss. In doing so, the loss can be written off and deducted from annual capital gains tax liabilities. After making the sale, the investor can then buy another asset. But just how do you claim crypto losses on taxes in 2024? 

Rules on this vary from one country to another. But in the US, for example, the same asset cannot be purchased within 30 days of making the sale. Nonetheless, let’s suppose that an investor has two long-term cryptocurrency investments. First, $5,000 worth of XRP was bought, which is now worth $15,000. This represents gains of $10,000. 

BNB to USD price chart

Second, $10,000 worth of BNB was bought, which is now worth just $4,000. This represents a loss of $6,000. Now, if the investor sold XRP, they would need to pay capital gains tax. But by selling BNB, the $6,000 loss will be deducted from the investor’s tax bill. The investor could buy another crypto asset immediately, as long as it’s not BNB.

6. Make a Donation

Investors might also consider making a donation when exploring how to avoid crypto taxes. Any crypto assets donated to a charity will allow the investor to avoid taxes completely. However, this is on the proviso that the crypto is sent directly to the charity’s wallet. On the other hand, selling the crypto to cash first would trigger a taxable event. 

Save the Children crypto donation

Dozens of charities now accept crypto directly, so investors can donate to their preferred cause. Some countries require residents to include charity donations on annual tax returns. This varies depending on the jurisdiction. Moreover, only certain types of charities may be eligible, so check this before proceeding. 

7. Never Sell

Another surefire way to avoid paying taxes on crypto is to never sell. And by this, we mean holding the crypto investment until death. In doing so, the tax benefits are impactful. For instance, the person holding the crypto when they die will not pay any tax at all. This is because the crypto assets have not been sold, so gains are not realizable. 

Moreover, the person receiving the crypto after the owner passes away will benefit from a re-evaluated cost basis. For example, let’s say the original owner bought 3 Bitcoin at a cost price of $5,000 each. This means the original investment was $15,000. When they die, BTC is worth $60,000, meaning the investment is now worth $180,000. Ordinarily, the original owner would need to pay capital gains tax on the $165,000 profit.

IRS estate and gift taxes webpage

However, if the recipient sold the crypto after the original owner died, the cost basis would be $60,000 per BTC. As such, the new owner could immediately sell the $180,000 crypto portfolio without paying a single cent in capital gains tax. This is because both the cost and sale value amount to $180,000 – at least in the eyes of the IRS. 

8. Avoid Staking and Other Yield Methods 

The final option to consider when exploring how to not pay taxes on Bitcoin is to avoid staking and other yield methods. This also includes crypto savings accounts, mining, dual investments, and yield farming. The reason for this yield proceeds is defined as income rather than capital gains. In turn, the proceeds will be added to the investor’s annual income. 

This can have disastrous effects for several reasons. First and foremost, this can push the investor’s income into a higher band. This will mean that the investor needs to pay a higher tax rate. Moreover, the tax will be due the same year the crypto income was earned. Another reason why crypto income should be avoided is that calculating taxes can be hugely complex. 

Ethereum coin staking

This is because the income is based on the value of the crypto tokens on the day they were received. Considering that the best crypto staking platforms make daily distributions, this will require a lot of work. Another consideration to make is that the taxable event is based on the entire yield rewards received. This is because there is no cost price on the tokens. 

An Overview of Crypto Taxes

In this section, we take a closer at how crypto taxes work. This will enable investors to better understand how to not pay taxes on Bitcoin and other cryptos.  

Capital Gains Tax

In most cases, capital gains tax is payable on profits made from a crypto investment. This is simply the difference between the cost and sale price of the crypto tokens. 

For example:

  • An investor buys 3 BNB at a price of $300
  • The investor sells 3 BNB at a price of $500
  • The capital gains on this investment are $200 per BNB
  • In total, the capital gains amount to $600 ($200 x 3 BNB)

Whether to not capital gains tax is payable will depend on many factors. For example, we mentioned that many countries have annual allowances for capital gains. The UK allows up to £6,000 annually in 2023. 

This means investors can make £6,000 in realizable capital gains without paying any tax. This is the best way to avoid capital gains tax, so investors should check what allowances are available in their home country. 

If capital gains tax is payable, the rate will also vary from one country to another. This can also vary depending on the investor’s income in the respective tax year. For example, US investors will pay capital gains tax at 15% if their income is between $44,626 and $492,300. Anything above this figure is taxed at 20%. 

Income Tax

We also mentioned that crypto income, such as staking and savings accounts, is taxed. The amount received will usually be added to the investor’s income for the year. 

For example, let’s say that an investor receives $5,000 worth of staking rewards in 2023. This $5,000 will be added to their income and taxed at the investor’s tax bracket. This can be problematic, as it can push the income to the next bracket, meaning a higher tax rate. 

For example, let’s suppose an investor made $40,000 in 2023. Additionally, $5,000 worth of crypto income was earned via staking. This takes the total income to $45,000. As such, any capital gains earned during the year will now be taxed at 15%. The investor would have paid a 0% tax rate without the staking rewards. 

The taxable event happens as soon as the crypto income was received and is calculated based on its value on the day. This means that investors will need to have adequate records in place to be able to assess their tax liabilities. 

How Much Crypto Tax do You Need to Pay? 

There is no one-size-fits-all answer to how much tax needs to be paid on crypto investments. 

This will vary depending on the:

  • Country of residence
  • Amount of capital gains made
  • Whether any crypto income was received
  • Investor’s annual income
  • Whether any allowances are available

Crucially, however, the tax will not be payable for as long as the crypto remains unsold. This is because tax authorities are only interested in ‘realizable’ gains. This simply means that capital gains are based on the difference between the cost and sale price. 

As such, when exploring how to avoid capital gains tax on crypto, one of the best options is to HODL. As discussed earlier, investors should also look to maximize their capital gains tax allowances. 

When earning crypto income, allowances are also available. For example, UK residents can earn up to £12,570 without paying any income tax. 

The Legal Aspect of Avoiding Tax on Crypto 

There is often a misconception that avoiding tax on crypto investments goes against the rule of law. This couldn’t be further from the truth. Avoiding tax simply means using the law to make tax-efficient investments. 

There are many ways that this can be achieved, such as those discussed earlier. This includes everything from gifting and donations to using annual tax allowances. It is, however, important to seek advice from a qualified advisor before deploying a crypto tax strategy.

The advisor should not only be qualified to give tax advice on how to avoid paying tax on cryptocurrency but also have experience with blockchain investments. 

If the investor makes the wrong decision, there is a risk of tax evasion occurring. This is a criminal offense, which is why getting proper advice is so important.   

Considerations should also be made when exploring how to spend crypto without paying taxes. While spending crypto can be a great alternative to cashing out, this will still trigger a taxable event.  

Conclusion – How to Not Pay Taxes on Bitcoin 

We have explored many strategies that enable investors to reduce or avoid taxes on crypto. From gifting and donations to tax-loss harvesting and IRAs, many options exist. 

Investors might also consider using some of their cryptocurrencies to buy products online. In this instance, we found that Crypto Emporium is a great option. 

This crypto-only store sells everything from smartphones, cars, and designer handbags to properties, cameras, and luxury watches. 

The ordering process is both fast and seamless, so there is no requirement to cash out any crypto. 

 

FAQs

What is the tax loophole for crypto?

Wash sale rules do not currently apply to crypto assets, so some investors sell at a loss and then repurchase the same token – enabling tax deductions. 

How do I avoid paying taxes on cryptocurrency?

There are various ways to avoid crypto taxes – including IRAs, gifting, donations, loss-harvesting, and using annual capital gains allowances. 

How is crypto taxed?

Profits made on cryptocurrency investments that have been sold are subject to capital gains tax.  

How can you legally pay less tax on Bitcoin?

One of the best ways to avoid paying tax on Bitcoin is to invest via an IRA (or similar tax-efficient investment account).

 

Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.

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