W2s and 1099s have been sent out and tax season is officially in full swing here in the United States. For those operating in the world of bitcoin or altcoin investing, this time of year can have added stress as reporting gains and losses for your crypto trades can be a cumbersome task. While the reporting can be difficult at times, there are many things you can do to help minimize your bitcoin and other cryptocurrency gains and, in turn, your tax liability. This article discusses a few of these tips and tricks.
Open a Crypto 401(k) or IRA Retirement Account
Retirement accounts like IRAs and 401(k)s are popular vehicles used in the world of investing. These types of investment accounts come with tax incentives and can help shield profits from the tax man. By using a retirement account like a self-directed IRA to purchase cryptocurrencies, you can defer paying tax (sometimes you can even pay none at all).
This is contrary to using a traditional cryptocurrency exchange where the income generated from selling or trading crypto is taxed during that same year. Cryptocurrency IRAs can be an effective tax reduction tool — especially if you believe in the long-term value of cryptocurrencies.
Keep in mind that there is a deadline to open and contribute to your self-directed cryptocurrency IRA. The period in which you can make a contribution for a given tax year is from January 1 of that year until you file your tax return. Contributions cannot be made after your filing deadline (i.e., April 15 of the following year).
Look into Using a Specific Identification Costing Method
After the new IRS cryptocurrency tax guidance came out in October 2019, it clarified that specific identification costing methods could be used when calculating your gains and losses for your cryptocurrency transactions provided that you had records to specifically identify your crypto.
This sounds a lot more complex than it is. Essentially, pre-2019, most bitcoin and crypto investors were using the common First In, First Out (FIFO) calculation method to calculate their gains and losses from their trades (the cryptocurrencies that you bought first are sold first) because the IRS had not yet specified whether specific ID was allowed. Now that the new guidance makes this clear, specific identification is a great way to reduce your gains.
In using this strategy, you want to specifically identify and “sell” the cryptocurrencies that you bought at the highest price first. For active traders, this slight change can lead to huge tax savings.
Cryptocurrency tax calculators are especially good at applying these tax minimization algorithms like Highest In, First Out (HIFO) and Last In, First Out (LIFO).
However, before you can use a specific identification method, you have to be able to specifically identify a unit of cryptocurrency as the IRS outlines:
To specifically identify a unit of cryptocurrency, you must have records of the following information:
- The date and time each unit was acquired;
- Your basis and the fair market value of each unit at the time it was acquired;
- The date and time each unit was sold, exchanged or otherwise disposed of; and
- The fair market value of each unit when sold, exchanged or disposed of, and the amount of money or the value of property received for each unit.
If you have this data for your transactions, you are able to use specific identification methods like LIFO or HIFO which can drastically lower your cryptocurrency capital gains taxes.
Hold for Longer Than One Year
Similarly to the world of investing in stocks, holding onto a cryptocurrency investment for longer than one year pushes you out to the long-term capital gains tax rates. These are typically much lower than the short-term capital gains tax rates which apply when you have sold or traded out of your investment after holding onto it for less than one year.
Additionally, if you are able to identify your cryptocurrencies specifically, you can take advantage of this strategy further. You can specify that the coins you “sell” are the coins that you have held for longer than one year’s time. This will qualify you for the long-term capital gains rate and will help reduce your overall tax liability!
Invest Your Crypto Capital Gains into a Qualified Opportunity Zone Fund
Opportunity Zone Funds became part of the tax code with the Tax Cuts and Jobs Act of 2017. The IRS defines an Opportunity Zone as an “economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” Put simply, the communities on the receiving end of these funds benefit from revitalization while investors gain tax benefits from investing.
When an investor sells an asset that produces capital gains, he or she can roll any amount of the gain into an Opportunity Zone Fund within 180 days of the sale. The investor can then defer capital gains taxes on that amount until December 31, 2026, or until the Opportunity Zone Fund investment is sold or exchanged (whichever comes first).
For bitcoin investors who have large amounts of capital gains, rolling these gains into an opportunity fund investment can be a powerful strategy for reducing your tax bill.
Use Cryptocurrency Tax Software
Finally, one of the best ways to fully maximize your tax savings on your crypto investments is to plug all of your trade history into a cryptocurrency tax software. Bitcoin and crypto tax software platforms have built-in tools to analyze and optimize your gains and losses reporting for tax minimization. Importing your trade history is as easy as connecting your cryptocurrency exchange accounts. Once your historical trades are in, these programs will then generate your tax reports with the click of a button.
This is a guest post by David Kemmerer, co-founder of CryptoTrader.Tax. Views expressed are his own and do not necessarily reflect those of Bitcoin Magazine or BTC Inc. This article is for informational purposes only and should not be considered tax or accounting advice. Always seek guidance from a tax accounting professional when assessing your individual tax situation.
The post 5 Tips For Minimizing Your Bitcoin and Crypto Taxes appeared first on Bitcoin Magazine.
XRP long-term Price Analysis: 19 September
XRP took a substantial hit in terms of its price this month, with the cryptocurrency falling on the charts in early-September on the back of Bitcoin’s fall. However, the past week has illustrated a determined XRP, one with strong bullish momentum as it tried to recover its previous losses.
At press time, XRP was being traded at $0.24 with a market cap of over $11 billion. Despite the previous week’s upward momentum, the price of the coin did note a minor dip of over 1 percent over the past 24-hours, with a trading volume of $2 billion.
XRP 4-hour chart
According to XRP’s 4-hour chart, the price has been moving in a steady ascending channel with a long-term breakout downwards expected in the coming week. The uptrend noticed on the daily chart may end up with a slight correction over the aforementioned period, however, dropping the price to its support at $0.241. With the price continuing to move within the formation, it is likely to briefly visit its resistance level at $0.25, following which, a downward breakout is quite possible. Further, there was an additional support at $0.23 and a resistance level at $0.27 for the coin.
At the time of writing, the MACD indicator had undergone a bearish crossover, confirming the possibility of a downward dip in the coin’s price over the coming week. Further, the RSI also echoed a similar sentiment, with the same falling towards the oversold zone on the charts.
Most altcoins in the long-term do exhibit substantial correlation with the king coin – Bitcoin, and such is the case for XRP. Over the past year, the XRP-BTC correlation has registered a significant uptick from 0.66 to 0.81.
XRP’s long-term price action looked slightly bearish as the coin was likely to see its price dip to its immediate support in the coming week, once it breaks out of the ascending channel formation. However, before such a move is made on the price charts, the coin may see it touch the resistance at $0.25, following which, a drop was quite likely.
Opinion: Can Uniswap’s UNI Break Into the Top 10 Cryptocurrency Token Rankings?
The launch of Uniswap’s governance token UNI caught the cryptocurrency market left, right, and center. Some folks who received the airdrop for being a loyal Uniswap user before September 1, dumped it on the market to avail their free helicopter money. Some held on.
Nonetheless, UNI got listed on Coinbase Pro, Binance and it’s price shot through the roof. It’s now on number 32 as per CoinGecko. But can it break into the top 10?
UNI Token Price Pumps, Dumps Then Again Pumps
As reported by CryptoPotato, the listing of UNI on Coinbase and Binance led to a massive pump in the token’s price. UNI surged 300 percent from $1 to $4 before dropping to the lower $2 levels later in the day.
Then, the token went on a rampage and reached a high of just shy of $9 before retracing to where it’s currently trading at around $6.7. But the explosive price action has generated tremendous enthusiasm amongst traders and DeFi fans who are calling for UNI’s break into the top 10.
So much is the frenzy that users were found to buy ETH to collect their ‘UNI helicopter money’ despite surging gas prices on the Ethereum network.
— The Wolf Of All Streets (@scottmelker) September 17, 2020
Can Uniswap’s Governance Token Break Into Top 10?
Since the launch and a super volatile bout of trading activity, Uniswap’s governance token is already a number 32 cryptocurrency according to data from CoinGecko.
Uniswap is currently the top DeFi project according to DeFi Pulse. And has assets with a total USD value worth $1.8 billion docked up in the DEX. An increment of 90 percent in the last 24 hours.
UNI has a $720 million market cap and is handling a $4.5 billion daily trading volume. Something which is unusual for a digital asset at such lower rankings. But according to hopium laced optimistic predictions on Twitter, the token will actually be a ‘unicorn’ cryptocurrency with its entry in the top 10.
Prediction: $UNI will soon be the #3 crypto asset.
— Cole Kennelly ⬙ 🦄 (@ColeGotTweets) September 17, 2020
And actually there may be some substance in such a claim as out of a maximum supply of 1 billion, only around 106 million UNI tokens are in circulation. The coin is trading currently for a price of $6.7.
It must be taken into consideration that Coinbase has an equity stake in Uniswap’s parent company Universal Navigation Inc and also holds a sufficient number of UNI tokens, as mentioned in their UNI token listing blog post.
This imparts a certain dose of legitimacy to the decentralized token swapping protocol. As per CoinGecko with current prices, UNI would have a ‘fully diluted valuation’ of more than $6.5 billion. That would be enough to push it comfortably amongst the top 10 cryptocurrencies.
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