The digital gold rush of cryptocurrencies comes with a significant tax burden. You most certainly owe capital gains tax if you make money purchasing and selling cryptocurrency. This tax covers your profit on selling your cryptocurrency for more than you paid for it.
Depending on your income level and length of time you stored the cryptocurrency, the United States’ tax rate may be as high as 37%. That accounts for a substantial share of your carefully earned savings.
Fortunately, there are legal ways to reduce or maybe totally offset your crypto tax burden. Still, most investors rely on strategies with little relief. They react to taxes instead of making plans in advance. Dominion is your ally here.
Not your typical tax experts, our area of expertise is assisting businesses and high-net-worth individuals over difficult financial terrain. Our experienced team is aware of how to leverage the global tax system to your advantage.
The shortcomings in common crypto tax strategies will be covered in this guide, along with the need for proactive planning. We will walk you through how our special approach at Dominion can create a completely new field of tax-saving opportunities. If you are prepared to control your crypto taxes and keep more of your profits, keep reading.
Common Crypto Tax Strategies
Although there are several strategies to control crypto taxes, their effectiveness usually lacks for those with complicated financial circumstances and high net worths. Let’s examine carefully some generally applied techniques:
Tax-loss Harvesting
Selling crypto at a loss under tax-loss harvesting balances any gains you have gained. On paper, it helps you to balance your profits and losses, therefore lowering your whole tax load.
This only works, though, if you have losses to balance your profits; it is more of a reactive approach for application following prior successful selections than a preventive one.
Moving to Low-tax Jurisdictions
Some governments or nations enable more advantageous tax rates on revenues from cryptocurrencies. This might seem interesting even if it calls for a major modification in way of life. Moving is difficult and might not be the best option for everyone – especially those who have close attachments to their present place.
Long-term Holding
The US tax system lowers the tax rates on assets kept for more than a year, therefore motivating long-term investments. Keeping your crypto over this length of time will enable you to qualify for these lower rates. But this approach freezes your money for a long time and leaves taxes due upon sale still to be paid.
Timing Profits
Should you be able to exactly schedule your crypto sales, you may sell in years when your total revenue falls short of average. You would therefore pay a lower tax rate, which would lower the tax paid on your crypto gains. This is easier said than done as future income projection might become difficult.
Gifting
Usually not taxable occurrences, such gifts of cryptocurrencies enable to avoid capital gains tax. Even so, you could only contribute a set amount per year without running gift taxes. For people that have considerable cryptocurrencies, this approach may not be as successful.
Investing through Retirement Accounts
Some have their crypto assets kept in IRAs or 401(k) retirement funds. Depending on the kind of account, this might provide tax benefits like perhaps tax-deferred growth or tax-free withdrawals.
These accounts have contribution restrictions, hence your investing options could be limited in relation to a standard brokerage account.
Charitable Donations
One may be a good effort to donate cryptocurrency to qualified charities. Apart from supporting a cause you believe in, you might also earn a tax credit for the fair market value of the crypto at the moment of the donation.
Regarding the appreciated cryptocurrencies, you may potentially avoid capital gains tax. Still, it’s important to choose a respectable company and apply some IRS rules on contributions to charity.
Crypto Loans
If you need cash but wish not to sell it and create a taxable event, think about getting a loan using your crypto as collateral. By doing this, you can realize gains and have liquidity free from paying taxes.
Still, you should be informed of the loan terms, interest rates, and hazards involved with loans guaranteed by cryptocurrency.
Detailed Record-keeping
Tax advantages rely on your keeping careful records of every crypto transaction. This covers the date of acquisition, the cost basis – that is, the initial buy price – of every cryptocurrency as well as the selling price.
Correct records can help you to calculate your capital gains or losses and maybe identify tax deductions. Using crypto tax software can help you to streamline this process and prevent errors.
Working with a Crypto-specific CPA
If you often trade or have a substantial portfolio, crypto taxes may get complex. Hiring a Certified Public Accountant (CPA) informed on crypto taxes is one wise investment.
They may help you better grasp the tax implications of your transactions and ensure you are following all relevant regulations and prospective deductions.
While these traditional methods have value, high-net-worth people and companies with large crypto holdings typically find them inadequate. The limitations of these approaches highlight the need of more sophisticated and personalized tax planning.
The Dominion Approach: Holistic, Proactive Tax Planning
At Dominion, we think about tax planning from a proactive, not reactive, standpoint. We plan ahead to reduce tax bills from the start; we do not wait for them to arrive. We also take a global stance, not constrained to the US tax system. For our clients, this creates an almost limitless universe of opportunities.
Our main instrument is the application of trusts and other legal frameworks. These instruments let us access a wider spectrum of tax-saving techniques than the norm. Consider trusts as unique containers for what you own. They have several advantages, including:
- In some situations, trusts can protect your assets against creditors, litigation, and even government seizures. For your family and yourself, this extra layer of security offers peace of mind.
- Trusts can be structured any way one wants to reduce taxes. They could, for instance, allocate money to lower tax bracket beneficiaries, postpone taxes to later years, or even completely remove them in some circumstances.
- Many nations provide tax incentives to draw investment through trusts. By organizing your assets in the most tax-efficient manner available, we can assist you in maximizing these rewards.
- Combining trusts with additional techniques such as offshore structures and private placement life insurance (PPLI) produces a complete tax strategy catered to your particular circumstances.
By allowing us to predict tax changes and modify your strategy accordingly, this proactive method helps you to constantly keep ahead of the curve.
Don’t settle for the minimal relief reactive tax plans provide. Dominion’s proactive strategy lets you take charge of your tax situation and retain more of your hard-earned money.
How Is Dominion Different?
Dominion isn’t like most businesses. Our team comprises globally-minded experts with a network of top attorneys from all across the world, as well as financial consultants. This affords us a complete grasp of tax laws both domestically and internationally.
Our areas of competence center on dealing with high-net-worth companies and people. We possess abilities to assist you in overcoming financial challenges in daily life. That includes assisting with complex investments, foreign business, or continually shifting tax legislation.
Our staff stays current on the most recent policies and incentives. We can help you traverse the shifting tax landscape and create strategies suitable for your particular situation. This proactive approach guarantees always the best possible tax plan available.
Our expertise transcends taxes. We also provide a wide range of services meant to help with growth and wealth management. From mergers and acquisitions to estate planning and asset protection, we can assist you at every level.
Working with Dominion gives you a trustworthy ally that is committed to your financial success. Get in touch today to let us help you achieve your long-term goals, protect your assets, and create new opportunities.
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