Crypto Investors: Reduce Future Taxes with This Little-Known Strategy
As bitcoin’s value continues to soar, crypto investors may be facing higher taxes. However, those in the 0% capital gains bracket can take advantage of a clever strategy to minimize their tax burden.
Tax-Gain Harvesting: A Savvy Move
Tax-gain harvesting involves selling profitable crypto assets in a lower-income year, allowing you to leverage the 0% long-term capital gains rate. This means you won’t owe taxes on your gains, as long as your earnings remain below a certain threshold. The 0% bracket applies to assets held for more than one year.
Understanding the 0% Capital Gains Bracket
The income limits for the 0% capital gains rate may be higher than you expect. For 2024, single filers with taxable income of $47,025 or less and married couples filing jointly with taxable income of $94,050 or less qualify for the 0% rate. These brackets are set to increase in 2025.
How to Calculate Taxable Income
To determine your taxable income, subtract the greater of the standard or itemized deductions from your adjusted gross income. This includes profits from crypto sales. For instance, a married couple earning $125,000 together in 2024 may have a taxable income below $94,050 after subtracting the $29,200 standard deduction.
Resetting Your Basis
By taking advantage of the 0% capital gains bracket, you can also reset your “basis,” or the original purchase price of your crypto assets. Sell profitable crypto to harvest gains without triggering taxes, then repurchase the same asset to maintain your exposure.
Running a Tax Projection
Before employing this strategy, run a tax projection to see how increased income could impact your situation. This will help you avoid phaseouts for tax breaks.
The Future of Crypto
With bitcoin’s value hovering around $90,000, up over 100% year-to-date, some investors expect a further boost under President-elect Donald Trump’s pro-crypto policies. While predicting future price increases is uncertain, savvy investors can take steps to minimize their tax liability today.
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