It’s a common concept that cryptocurrency is not regulated as compared to other currencies, which is why it allows the public to avoid tax-paying. However, it’s important to understand that the IRS has labeled cryptocurrency as a capital asset for income tax purposes.

Now, coming to the tax season, you will be worrying about paying the taxes for your cryptocurrency profits just like you would for other capital assets. However, with this article, we are sharing the tax benefits of crypto donations to help you out!

Filing & Reporting The Cryptocurrency Donation Taxes

Generally, the money you owe in the form of cryptocurrency taxes is calculated by the capital loss and gain in a certain period. The capital loss or gain that you report on tax returns is basically the difference between the money you earned on crypto sales and the cost (the money you spent to purchase cryptocurrency). In addition, you need to consider the timeline that you have owned the cryptocurrency.

To illustrate, short-term loss or gain occurs if you sold and bought the Bitcoin unit in the last 365 days while long-term loss or gain occurs if you sold the Bitcoin unit after 365 days. Each type of capital loss and gain has different tax rates, depending on the taxable income.

How Is Cryptocurrency Gain Treated

In particular, we are talking about the tax season because most people have already started leveraging cryptocurrency to purchase services and products. It’s actually evident as crypto adoption is increasing and more companies have started accepting it as a payment method. On the other hand, purchasing products through cryptocurrency results in capital gain tax.

To illustrate, whenever someone converts Bitcoin into cash, it becomes a taxable event and goes by a specific tax code whenever someone enjoys profit over the cryptocurrency and uses it for paying for products.

What About The Cryptocurrency Losses?

If your cryptocurrency has lost value in a specific time period, you will experience capital loss. The users can offset the capital gains with the loss, so you can minus income from the tax returns, but there are rules to be kept in mind, including;

• The users must apply for short-term losses to decrease the short-term gains. Similarly, you should only apply for the long-term loss if you want to reduce the long-term gain
• If you struggle with more losses, you can apply to the opposite form of profit/gain
• Consequently, the users can utilize the remaining capital loss for offsetting over $3,000 of the taxable income

Honestly, it can be pretty challenging, but the results are always worth it.

How To Avoid Taxes On Cryptocurrency With The Help Of Donations

To begin with, the currently-implied tax and accounting implications can be rigid, but there are various methods that you can try to reduce taxes on cryptocurrency. The first and most commonly used way of reducing taxes is to donate to charity.

This is because when you donate cryptocurrency to a non-profit organization, it won’t be considered a taxable event. It means that if you’ve made a cryptocurrency donation to any non-profit organization.

There won’t be any taxes involved. On the other hand, if you convert your cryptocurrency assets into cash form and donate it to a charity organization, you will be liable for capital gains tax.

Looking Into Tax-Loss Harvesting

If you are a cryptocurrency investor who is trying to avoid taxes, tax-loss harvesting is another option. Currently, the wash sale rules aren’t applicable to cryptocurrency, but you can sell the tokens and purchase them back instantly at a higher price rather than waiting thirty days as you would do with the stocks. So, people can gather various losses to assist in offsetting the profits.

It’s critical to point out that you need to track the activities carefully for validating the claims to the IRS. In addition, keep in mind that this process will lessen and defer the taxes, but it doesn’t avoid them permanently. Also, the offsetting rules are applicable to losses as well, with which you need to apply the short-term loss to the gains and long-term loss to the long-term gains.

To summarize, paying property taxes is critical while you use and trade through thebitcoincode.io or other exchange platforms.