How to minimize your crypto tax liability?
Sometimes if you are lucky, you can make a huge profit by selling the cryptocurrency at the right time. As a result, you will need to pay taxes on your gains. Here are the few things that you can do to reduce your crypto tax liability:
- Tax-loss harvesting – If your cryptocurrency holdings have reduced in value, then you can go for tax-loss harvesting in which you sell your cryptocurrency, which has reduced in value to decrease your tax bill. Tax-loss harvesting is done to offset capital gains with capital losses, and it is completely legal.
- Long term investment – The capital gains rate is lower for investments that are held for over a year. So if you sell your cryptocurrency after nine months, you will have to pay higher capital gains tax than if you would have sold it after thirteen months. So when you are making buying and selling decisions, it’s worth waiting to keep long term capital gains in mind.
- Give away cryptocurrency – There is a rule where gifts under a certain amount aren’t taxed. This may look like going overboard, but if you want to share your wealth with your family and friends, gifting cryptocurrency can be the best way.
Some of the above-given tips are easy to apply, and you can save a lot of tax through them.
How to save capital gain tax?
Tax saving is one of the best ways to increase your savings. Here are the few points that will help you in saving your capital gain tax:
- Keep a detailed record of your cryptocurrency transactions- You should document your entire buy and sell dates of cryptocurrencies in a spreadsheet. Most of the financial services companies send you year-end tax statements, which is not true with cryptocurrencies companies which complicate the tax filing process.
- Hire an accountant to file your taxes – It is especially necessary if you have back taxes. Hire an experienced accountant who can file your taxes and offer you advice on tax savings.
- Gift your cryptocurrency – The process of gifting cryptocurrency is similar to the gifting of stocks. When you gift cryptocurrency, you get a tax rebate on capital gains tax.
- Crypto tax software – Crypto Tax Software can be used to identify how much money you have to pay in taxes. As finding the gains and losses manually for every trade that you have executed throughout the year is difficult, crypto tax software can automate the entire tax reporting process for traders. You can directly plug the report generated into the tax filing software like Tax Act for cryptocurrency or Turbo Tax.
- Invest for the long term – Taxes are lower if you keep cryptocurrency for more than a year. Thinking long term while investing in cryptocurrency is a prudent strategy as capital gains tax is lower for the investments held for more than a year.
What are KYC and AML? Why it’s so important in cryptocurrencies?
KYC and AML are the procedures to prevent fraudulent people from getting into the crypto business. Most of the financial institutions and crypto exchanges make use of KYC and AML to prevent the use of cryptocurrencies for illegal purposes. Both these identification features allow the financial organization to know their user base from their source of income. As the demand of cryptocurrencies is increasing day by day, it has become important for exchange platforms to bring strict security measures.
KYC (Know your customers)
KYC is the customer identification process having a few steps and processes that an exchange or company should employ to ensure and confirm the identity of its customers and users. Generally, the KYC process involves the submission of identity proof like photo IDs, residential address, passports, contact numbers and driving license, etc. The main aim of know your customer panel is to ensure that unqualified people are not allowed in the trading of cryptocurrency.
AML (Anti-money laundering)
AML refers to a few procedures, regulations, and laws that are created to prevent illegal activities in the industry. The activities included are tax evasion, market manipulation, misuse of public funds, and many more. Financial institutions are required to conduct due-diligence procedures to prevent activities that are illegal.