10 Crypto Tax Strategies to Keep More of Your Gains

Making money in cryptocurrency is great. Keeping more of the gain and sending less to the IRS is even better. Talk about winning twice. Crypto may feel like a completely different world from stocks, real estate, and traditional investing, but the tax code still applies. The good news is that once you understand how your crypto is being taxed, there are some incredibly powerful strategies you can use to engineer a better tax result while continuing to build wealth.

Before I get into my top 10 strategies, we need to get a few basic concepts on the table.

How Is Cryptocurrency Taxed?

Crypto doesn’t have its own special tax rate or tax bracket. Generally, when you're investing in cryptocurrency, you're dealing with the same basic concepts that apply to other capital assets. But how you make money from crypto matters.

If you buy crypto and later sell it for a profit, the length of time you held it can determine whether the gain is short-term or long-term. Hold it for one year or less, and the gain is generally short-term and taxed at ordinary income tax rates. Hold it for more than one year, and you can generally qualify for the more favorable long-term capital gains rates.

Then there's crypto income that comes from activities such as mining or certain staking activities. Depending on what you're doing and how involved you are, that income can be treated differently and may even be subject to self-employment tax. Think of these as different lanes on the highway. Before you start throwing tax strategies at your crypto portfolio, you need to know which lane you're actually driving in.

And one more warning: buying and selling crypto does not automatically make you a business. Setting up an LLC doesn't magically change that either. An LLC may provide legitimate legal or privacy benefits depending on how it's structured, but simply putting "crypto" in the LLC's name doesn't turn your personal trading expenses into business deductions.

Now, let's get into the strategies.

1. Harvest Your Crypto Gains and Losses Strategically

Everybody talks about tax-loss harvesting. I want you thinking about both sides of the equation. Crypto is volatile, but with that volatility comes opportunity.

Let's say you bought Bitcoin for $90,000 and it falls to $60,000. Selling can potentially lock in a $30,000 capital loss that may be available to offset capital gains, subject to the applicable tax rules. But don't just look for losses. Look for opportunities to harvest gains strategically too.

If you're sitting on appreciated crypto and you're currently in a favorable long-term capital gains bracket, realizing some of that gain could make sense. You may even be able to sell, recognize the gain, and establish a new tax basis in the asset.

I like to think about this as making a smoothie. We're taking your gains, your losses, your other income, your deductions, and your tax brackets, throwing them into the blender, and trying to get the best overall result on your 1040. That's why year-end tax planning is so important. What did you make in your business? What did your rentals produce? What did you earn at your day job? Are you married? What does your spouse earn?

Don't look at your crypto taxes in a vacuum. Look at the entire tax return.

2. Buy Crypto Inside a Roth IRA or Roth 401(k)

This is one of my favorite strategies. If you believe cryptocurrency is going to appreciate significantly over the next 10, 20, or 30 years, ask yourself a simple question: Where do you want that growth to happen?

You can hold cryptocurrency personally and potentially owe taxes when you sell it. Or, if structured properly, you can invest through a self-directed Roth retirement account and potentially build that wealth in a tax-free environment. That's where the Crypto Roth IRA comes in. A self-directed Roth IRA can invest in cryptocurrency rather than being limited to the traditional stocks, bonds, and mutual funds you typically see at a Wall Street brokerage. And I freaking do this myself.

I've used crypto retirement accounts in my own family because if I believe an asset has significant growth potential, I want at least some of that growth occurring inside a tax-advantaged account. Now, don't think you're going to take $500,000 of cryptocurrency you already own personally and simply dump it into your Roth IRA. That's not how it works.

Think of it as a snowball going down the hill. Each year, use the contribution opportunities available to you. If you have additional retirement-plan opportunities through your employer or small business, explore those too. Then do it again next year. Be patient with the strategy. The snowball gets bigger.

And remember, I'm talking about the tax structure here, not telling you which cryptocurrency to buy. The investment decision is still yours.

3. Hold Appreciated Crypto for More Than One Year When You Can

This isn't sexy, but it has to be on the table. Whenever it makes sense from an investment standpoint, consider holding appreciated crypto for more than one year before selling. Why? Because crossing that threshold can move a gain from short-term capital gain treatment into the long-term capital gains system.

If you buy cryptocurrency and sell it quickly for a gain in a taxable account, you're generally dealing with short-term capital gains taxed at ordinary income rates. Once you qualify for long-term treatment, you can potentially take advantage of the lower long-term capital gains brackets and some of the other planning we're discussing here.

I'm not telling you to hold a terrible investment solely for tax purposes. Investment strategy comes first. But if you're already planning to hold an asset and you're approaching that one-year mark, understand the tax consequences before hitting the sell button. Sometimes a little patience can make a significant difference.

4. Understand the Special Tax Treatment of NFTs

This one is less of a tax strategy and more of a “did you know?” because NFTs can play by different tax rules than other cryptocurrency assets. NFTs may not have the same hype they once did, but if you're still buying, creating, or selling them, you need to understand what you're dealing with before assuming everything falls under the same crypto tax treatment.

Depending on the NFT and what it represents, the IRS may treat it as a collectible for tax purposes. That's important because the maximum long-term capital gains rate on collectibles can be 28%, which is different from the maximum 20% long-term capital gains rate that generally applies to many other capital assets. It's similar to the special treatment that can apply when selling certain precious metals and other collectibles.

So don't throw Bitcoin, XRP, NFTs, and every other digital asset into one big tax bucket and assume they're all treated exactly the same. Know what you actually own, what the NFT represents, and how the tax code treats it before you sell.

5. Consider a Charitable Remainder Trust for a Large Crypto Gain

Now we're getting into some more advanced planning. If you're sitting on a significantly appreciated cryptocurrency portfolio, a Charitable Remainder Trust (CRT), particularly a Charitable Remainder Unitrust (CRUT), may deserve a serious look. I've been using these trusts with appreciated assets for years, including real estate, and we've increasingly used them with crypto investors who have built substantial portfolios.

Here's the basic concept. Instead of selling the crypto personally and triggering the capital gain first, you contribute the appreciated crypto to the charitable trust before the sale. The trust can then sell the crypto without the immediate capital gains hit you would generally experience from selling it personally. Those proceeds stay inside the trust, where they can be reinvested, and you receive an income stream based on the terms of the trust. Ultimately, whatever remains goes to the charity you've designated.

There are some other interesting benefits here too. The trust can provide an income stream for the rest of your life, and depending on how it's structured, that income can also be designed around you and your spouse. The assets inside the trust can also receive significant asset protection, and there may be additional estate and charitable planning opportunities to consider. This is why a CRUT can become such a powerful tool when we're dealing with a major appreciated asset.

But let's put this strategy in perspective. If you've got less than a million dollars in gains, I wouldn't worry about it. There are legal, administrative, and ongoing costs involved, and you're also making a real charitable commitment. But if you're staring at a million dollars or more in appreciated crypto, this has got to be on the table. At that level, the potential tax savings and additional planning benefits can completely change the conversation.

6. Borrow Against Crypto Instead of Selling It

This is a strategy real estate investors already understand. You own a property, it goes up in value, and you want access to some of that wealth. Do you have to sell the property, recognize the gain, and pay the tax? Not necessarily. You may be able to refinance the property or borrow against the equity instead.

The same basic concept can apply to cryptocurrency. As the lending market around digital assets continues to develop, there are lenders and institutions that may allow you to borrow against a crypto portfolio rather than selling the underlying assets. Because you're taking out a legitimate loan that has to be repaid, you're generally not creating the capital gain that you would have triggered by selling the crypto.

Here's what I like about it. You get access to liquidity while continuing to own the underlying cryptocurrency. If that crypto continues to appreciate, you're still participating in that growth. That's why this strategy has been used for years with real estate and stock portfolios. You're accessing the wealth without necessarily selling the asset that created it.

Of course, you've got to run the numbers. There's a cost to the debt because you're paying interest, and cryptocurrency brings another layer of risk because of its volatility. If the value of your collateral falls substantially, you could face additional collateral requirements or liquidation depending on the loan terms. Borrowing against your crypto can be a powerful tax-planning tool, but don't confuse avoiding a sale with eliminating risk.

7. Watch the New Opportunity Zone Rules

This is one I want crypto investors paying attention to as we move into the new Opportunity Zone rules beginning in 2027. The basic concept is that when you realize an eligible capital gain, you may be able to take that gain and reinvest it into a Qualified Opportunity Fund rather than simply paying all of the tax and walking away.

Here's an easy example. Let's say you originally invested $100,000 in cryptocurrency and later sell it for $200,000. Your proceeds are $200,000, but your gain is $100,000. It's the gain we're focused on for the Opportunity Zone strategy. Under the applicable rules, you may be able to invest eligible gain into a Qualified Opportunity Fund and receive tax benefits tied to that investment and how long you hold it.

Now here's what I really like about this for crypto investors: you're diversifying your wealth at the same time. Maybe you've built a significant portion of your net worth in cryptocurrency and you're ready to take some chips off the table. I'm not saying sell all your freaking crypto and buy real estate. But if you're already planning to sell a portion of it, taking that gain and deploying it into a qualifying Opportunity Zone investment could give you exposure to a completely different asset class while potentially creating significant tax benefits.

The Opportunity Zone program is changing, so don't dust off an article from five years ago and assume the old rules still apply. New zones and a new framework are coming into play beginning in 2027. If you're considering a significant crypto sale around that transition, the timing of the sale and investment matters. This is exactly the type of strategy I want planned before you hit the sell button, not after.

8. Use an S Corporation When Your Crypto Activity Is Actually a Business

I want to make an important distinction here because this is where people get into trouble. Trading cryptocurrency does not become a business just because you formed an LLC. Buying and selling crypto online doesn't suddenly give you the right to deduct your home office, travel to crypto conferences, meals, and every other expense you can think of.

But there are crypto activities that may legitimately operate as a business. Crypto mining is a great example. If you're running mining equipment, generating income around the clock, paying operating expenses, and materially participating in the activity, now we've got a completely different conversation. The same may apply if you're actively creating NFTs or operating another legitimate business within the crypto ecosystem.

When you actually have a business, an S corporation may become an important part of the tax strategy. Depending on your facts, the right business structure can help you properly account for the income while taking legitimate deductions associated with operating that business. That could include qualifying equipment costs, home office expenses, travel, dining, and other ordinary and necessary business expenses.

If you already operate another small business through an S corporation, there may even be situations where a separate subsidiary or entity fits into the overall structure for the crypto activity. But don't work backward. The business activity creates the opportunity for business tax planning. Forming an LLC or electing S corporation treatment doesn't magically transform personal investing into a business.

9. Use the "Lazy 1031" Strategy to Offset Crypto Gains

I call this strategy the Lazy 1031, but let's get something straight from the beginning. You cannot do a traditional Section 1031 exchange with cryptocurrency. Section 1031 is generally reserved for qualifying exchanges of real property. The Lazy 1031 gets its nickname because we're trying to accomplish a similar economic objective in a completely different way: create a legitimate deduction somewhere else to help offset the taxable gain.

Let's use the same numbers from the transcript. Say you invested $100,000 in crypto and later sell it for $200,000. You've got $200,000 in proceeds and a $100,000 taxable gain. Rather than simply accepting the tax bill, I want to ask whether there is another legitimate investment you were already interested in making that could generate a significant current deduction.

Maybe you invest in qualifying equipment that you're going to lease out. Maybe you purchase equipment for an existing business. Maybe you invest in real estate where the depreciation rules, your level of participation, and the particular facts allow you to generate deductions. With 100% bonus depreciation available for qualifying property under current law, there can be situations where a new income-producing investment creates a substantial deduction in the same year you recognize the crypto gain.

Now we're taking the gain from one part of your financial picture and strategically pairing it with a legitimate deduction somewhere else. You're also potentially diversifying your wealth and creating another source of income. That's why I love this strategy when the numbers and the investment make sense.

But don't go buy something stupid just to get a tax deduction. I want you buying an asset that has a legitimate business or investment purpose and is designed to generate income. If it happens to create a significant tax deduction that helps offset your crypto gain, freaking fantastic. The tax strategy should make a good investment better, not convince you to make a bad investment.

10. Know Your Capital Gains Bracket Before You Sell

Let's finish with a strategy that's incredibly simple but easy to overlook: know what capital gains bracket you're actually in before you sell. People hear "capital gains tax" and immediately assume they're going to pay the maximum rate. That's not necessarily true.

For long-term capital gains, there are different federal rates depending on your taxable income and filing status. You may be in the 0%, 15%, or 20% long-term capital gains bracket, and knowing where those brackets break can help you decide how much appreciated crypto you want to sell in a particular year.

For example, maybe you're having a lower-income year and have room to recognize some long-term crypto gains while remaining in a favorable capital gains bracket. Instead of letting that opportunity disappear on December 31, you might intentionally sell a portion of your appreciated crypto. Maybe you sell another portion next year. As we talked about earlier with gain harvesting, sometimes the strategy is simply chunking away at the gain instead of creating one massive taxable event.

The same principle applies to higher-income investors. Even if you don't qualify for the 0% rate, understanding where you fall within the long-term capital gains brackets can help you determine whether realizing another $50,000, $100,000, or $500,000 of gain this year creates a significantly different tax result.

This is why I want you projecting the tax return before a major crypto sale. Look at your W-2 income, business income, rental income, your spouse's income if you're married, your deductions, and the gains and losses you've already recognized. Then figure out where the next dollar of crypto gain is actually going to land. Don't sell first and ask what happened when you file your tax return six months later. That's tax preparation. I want you doing tax planning.

Don't Let Taxes Drive Every Crypto Decision

I love tax strategy, but the strategy still has to make economic sense first. Don’t hold a collapsing asset because you’re terrified of paying capital gains tax. Don’t borrow against a volatile crypto portfolio without understanding the risk. And don’t go buy something stupid just because it creates a tax deduction. As I like to say with strategies like the Lazy 1031, I want you buying something that’s going to generate income and continue building your wealth.

The tax code should help you engineer a better tax result while still creating wealth. That’s the whole point. Make a smart financial decision first, then look for the tax strategies that allow you to keep more of what you make.

The Bottom Line

Crypto is volatile, and that's exactly why tax planning matters. Harvest your gains and losses intentionally. Pay attention to your holding periods and tax brackets. Build crypto inside tax-advantaged accounts when appropriate. And when you're dealing with substantial gains, start looking at advanced strategies like charitable trusts, Opportunity Zones, strategic borrowing, and investments that can create legitimate deductions.

If you’re sitting on significant crypto gains or planning a major sale, do the tax planning before you hit the sell button. Book a Comprehensive Tax and Business Consultation with my law firm, KKOS Lawyers, and get your gains, losses, tax brackets, business income, and available strategies mapped out before the transaction happens. If you’re ready to start buying crypto inside a crypto IRA, my team at Directed IRA can help you get the right account in place.

Don't wait until you've already sold the crypto to start asking how to save taxes. By then, some of your best options will already be gone.