How to Avoid Crypto Taxes – 9 Ways to Not Pay Taxes on Bitcoin

In the ever-changing world of cryptocurrency, more investors than ever are producing positive returns from investing in digital currencies like Bitcoin and Ethereum. However, given the enormous returns potential on offer, these investors are usually eager to minimize their tax liabilities.

This article will explore nine strategies on how to avoid crypto taxes, providing valuable insights that will help investors understand complex tax regulations. We’ll also detail the different types of crypto taxes before discussing whether or not it is legal to avoid them.

9 Ways to Legally Avoid Paying Crypto Taxes

As the popularity of cryptocurrencies continues to rise, many investors are searching for ways how to avoid crypto tax legally to maximize their gains. Fortunately, there are various strategies that these investors can employ, which are listed below: 

  1. Buy Items on BitDials
  2. Invest Using an IRA
  3. Have a Long-Term Investment Horizon
  4. Gift Crypto to Family Members
  5. Relocate to a Different Country
  6. Donate Crypto to Charity
  7. Offset Gains with Appropriate Losses
  8. Sell Crypto During Low-Income Periods
  9. Utilize Crypto Tax Software

An In-Depth Look at How to Not Pay Taxes on Bitcoin

As reported by CNBC, one in five Americans (20%) has invested in, traded, or used cryptocurrency. This statistic highlights the growing adoption of digital currencies – but also the challenges lawmakers have when it comes to implementing tax laws.

Given the market’s fast-growing nature, many people are eager to learn how to not pay taxes on Bitcoin. With that in mind, let’s take a more in-depth look at the strategies listed above: 

1. Buy Items on BitDials

Kicking off our discussion of how to avoid crypto tax is a strategy that many investors likely already do – buy items with their cryptocurrency holdings, but who accepts Ethereum and other altcoins in 2024? This process has become increasingly accessible in recent years, with more merchants than ever opting to accept crypto payments.

But what can you buy with Bitcoin and other cryptos – and how can this lower an investor’s tax liability? In terms of the former, investors can purchase thousands of products online, ranging from high-end watches to automobiles. So, if you’re looking to buy a Rolex with Bitcoin, BitDials has you covered. Some online stores even allow crypto-savvy individuals to buy homes using Bitcoin, Ethereum, and other altcoins.

bitdials homepage

When it comes to how to pay less tax on cryptocurrency, the process of buying items doesn’t directly lower taxes. However, this approach can help reduce the investor’s overall tax burden, especially if they sell their crypto holdings at a loss. This tactic is referred to as “tax loss harvesting,” which we’ll explore in more detail later in this article.

An example would be if an investor bought one of the best altcoins (e.g., Ethereum) when it was valued at $4,500 and sold when its value dropped to $2,000. No capital gains are made in this example, and the investor can use the $2,000 received from the position to buy items online rather than reinvesting and potentially heightening their tax liability once more.

bitdial watches

In this instance, those wondering how to avoid crypto taxes may wish to check out BitDials. BitDials is a premier online marketplace designed for crypto-savvy shoppers. The marketplace supports and accepts DOGE and other various digital currencies, such as BTC, ETH, and USDT, and ships worldwide. You can also pick up your products in person at their partner stores in Frankfort, Paris, Amsterdam, Madrid, and Prague

Swiss-based BitDials has been in operation since 2016, building up a solid reputation within the crypto community. The marketplace’s standout feature is its diverse product selection, which contains luxury jewelry, cars, watches, and even charter flights.

Thus, crypto investors can buy a watch with Bitcoin while lowering their tax liability through the aforementioned tax loss harvesting process. Making purchases at BitDials is straightforward – all that’s required is a supported cryptocurrency wallet and an appropriate amount of crypto to cover the purchase total and any related network fees.

bitdials payment page

BitDials also has a dedicated customer support team on hand 24/7 to handle customer queries and issues. This team can be contacted through the live chat box on each page – although shoppers can also use their contact form.

Finally, BitDials will also source your desired watch if it’s not available on their website using their extensive network. If you contact them with a request they will get back to you within 24 hours with a price and timeline. Any other luxury products can be suggested, too, giving you the freedom to spend your crypto on the products you truly want.

2. Invest Using an IRA

Another popular strategy for how to avoid capital gains tax on crypto is to invest using a tax-efficient product like an Individual Retirement Account (IRA). An IRA is a type of savings account designed to help individuals save for retirement. These accounts have some unique tax advantages that “regular” savings accounts don’t have.

There are different types of IRAs, but using a Traditional IRA as an example, holders do not pay taxes on capital gains until the money is withdrawn at retirement. This is because contributions are tax-deductible, so investors don’t need to worry about their tax burden until the end of the product’s lifespan.

crypto IRA

Another type of IRA is a “Roth IRA.” With a Roth IRA, contributions are made in after-tax income, meaning that withdrawals are tax-free. Importantly, this also means that any capital gains made within the Roth IRA are tax-free (subject to certain conditions). If an investor purchases BTC using a Roth IRA and the coin triples in value, no tax would be paid on the profits.

So how do you avoid tax on crypto using one of these IRAs? The most popular approach is to partner with an IRA provider that permits crypto investments. These tend to be called “cryptocurrency IRAs,” although some providers also offer self-directed IRAs that allow crypto purchases.

Holders of these IRAs can access the best cryptocurrency to invest in and make purchases through the provider’s own setup. This simplifies the process and helps investors lower (or avoid) taxes. However, those with advanced queries may wish to consult a tax professional to ensure they meet the defined tax requirements.

3. Have a Long-Term Investment Horizon

Those wondering how to avoid paying tax on cryptocurrency may also consider holding their crypto assets long term. This strategy can work in two ways – avoiding tax altogether or significantly lowering the tax burden.

In terms of the former, the way that investors can avoid paying taxes is not to sell their crypto holdings. Tax is only calculated on the capital gains made from an investment position – and capital gains only occur when the trade is exited, and a profit is made. If the position is never exited, then there’s nothing to tax.

Long-term investment horizon

Naturally, this option won’t appeal to many people since it means they can never really “access” their crypto to utilize for spending purposes. Thus, most people prefer to opt for the second approach, which is to hold crypto for a sufficient period to qualify for the long-term capital gains rate – which is lower than the short-term capital gains rate.

According to the crypto tax specialist Koinly, crypto assets qualify for this lower rate when they’ve been held for 365 days (or one year). By doing this, investors can lower their tax burden significantly.

Interestingly, single people who make a taxable income of less than $44,625 won’t be charged capital gains at all. Moreover, those with a taxable income of between $44,625 and $459.750 will only be charged 15% on their capital gains. Finally, the highest tax bracket for long-term capital gains is only 20%, so it’s best to have a long-term investment horizon when looking to minimize tax. 

4. Gift Crypto to Family Members

Gifting Bitcoin to avoid tax is a relatively straightforward tactic that crypto investors can employ. Regardless of whether it’s Bitcoin or another top new cryptocurrency, the act of “gifting” is usually not considered a taxable event. By doing this, investors and the gift recipient will not have to pay taxes on the gifted amount.

There are some rules to be aware of for this approach. For example, based on current US regulations, crypto investors can only gift $17,000 per person per year before having to file a gift tax return. Moreover, the person receiving the crypto will still have to pay tax on any capital gains made after they acquired it.

GIft crypto IRS

Notably, US citizens have a “gift and estate tax exemption” of $12.92 million in their lifetime ($25.84 million for married couples). Crypto investors can utilize this exemption to avoid any gift tax that might otherwise have accrued.

Ultimately, this approach can’t help investors avoid crypto tax entirely, as there will still be tax owed upon sale – assuming a positive return is made. However, it will help keep crypto holdings in the family, which can be highly beneficial. 

5. Relocate to a Different Country

Those who invest in the best crypto under $1 and see their investment explode in value may wish to consider relocating. When it comes to how to avoid crypto tax, relocating is one of the most complex and arduous approaches. However, it can also be one of the most effective for reducing (or removing) a tax burden.

The most popular location in this regard is Puerto Rico. Puerto Rico is still a US territory but has its own tax system that offers some enticing benefits for investors. The most notable advantage is that Puerto Rico doesn’t charge any taxes whatsoever on capital gains made through investing.

Puerto Rico crypto tax

Thus, if an investor purchased BTC at $20,000 and it rose to $200,000, they’d not have to pay any taxes on accrued profits. The purchase doesn’t have to be made before moving to Puerto Rico; however, unrealized gains before relocating will still be subject to regular taxation.

Another viable location for those wondering how to avoid crypto taxes is Portugal. Portugal doesn’t charge any tax on profits made through cryptocurrency investing. However, to benefit from these tax laws, investors must be a resident of Portugal, which can be a lengthy process.

6. Donate Crypto to Charity

Another option for those researching how to not pay taxes on Bitcoin is to donate cryptocurrency to charity. This is a quick and easy way for investors to lower their tax burden since more charities than ever now accept crypto donations. Some examples include the American Red Cross and Save the Children US.

Generally speaking, donations are considered tax-deductible actions in the US and are, therefore, not subject to taxation. The critical element to remember is that the charity has to be qualified and registered in the country. Thus, crypto investors should research their chosen organization to ensure donations will be eligible for tax exemption.

Red Cross crypto donations

Another important aspect relevant to crypto donations is that investors can avoid paying taxes on any value appreciations that might have occurred. Moreover, these investors can also deduct the “fair market value” of the donated crypto from their taxable income.

However, in many cases, the entire amount cannot be deducted. The specific amount that is deductible depends on the investor’s adjusted gross income (AGI). Regardless, even if only a small amount is considered deductible, making crypto donations still allows investors to minimize their tax liability while also supporting a good cause.

7. Offset Gains with Appropriate Losses

Many opt to make long-term crypto investments to benefit from gradual price appreciations, which is more likely with “established” cryptos like Bitcoin and Ethereum. However, when it comes to how to avoid crypto tax, it’s essential to be aware that losses from other investments are a way to reduce the overall tax burden in a specific tax year.

We’ve briefly touched on this earlier, but this tactic is called “tax-loss harvesting.” Essentially this means that when a crypto asset is sold at a loss, it is defined as a “capital loss,” which can be used to offset gains made elsewhere.

Offset crypto gains

For example, if a crypto investor makes a profit of $20,000 on their Bitcoin investment but loses $7,000 on their Solana investment, they will be able to reduce their taxable gains by $7,000. Thus, instead of being taxed on $20,000, the investor will only be taxed on $13,000.

This process is widespread – especially in the equity market. Many investors “cut their losses” towards the end of the year when annual income taxes are due, which is a popular way to reduce the tax burden.

Another benefit of this approach is that if an investor doesn’t make any capital gains and instead makes a capital loss, this loss can be deployed to offset other ordinary income. The claimable amount is currently set at $3,000, although anything that isn’t claimed can be carried over to future years.

8. Sell Crypto During Low-Income Periods

In many cases, figuring out how to not pay taxes on Bitcoin can be impossible since the system is designed to ensure those making investment returns must contribute to society through taxation. However, another straightforward way to minimize the tax burden is to sell crypto holdings during a low-income period.

This works because an individual’s tax liabilities are determined by how much money they make. Naturally, the more money someone makes, the more tax they pay since they’ll fall into a higher tax bracket. This also works the opposite way – those who make less money will not have to pay as much tax.

Sell crypto during low-income periods

Due to this, investors wondering how to avoid crypto taxes can opt to “cash in” on their investments during times in their life when their income level has dropped. For example, if an investor has been unemployed for an extended period, their income level will naturally be lower, presenting an excellent opportunity to sell their crypto.

By taking this approach, investors may fall into a lower tax bracket, meaning they’ll benefit from a lower tax rate. However, this also must be balanced by the fact that overall income will be less than usual – so actual financial well-being may still be worse. 

9. Utilize Crypto Tax Software

The final strategy we’ll discuss in this guide on how to avoid crypto taxes is utilizing effective crypto tax software solutions. This is a widely-used strategy since it ensures investors aren’t underreporting (or failing to report) any crypto-based gains they’ve made.

As such, crypto tax software can help investors avoid fines associated with these two actions. Moreover, some of the best software applications even have built-in tax advice features; for example, they might highlight the most effective time for a crypto investor to sell their assets to benefit from tax-loss harvesting.

crypto tax software

Finally, this tax software ensures that gains and losses are accurately reported, which gives investors confidence that they aren’t paying too much tax. Since these software applications usually generate the necessary tax reports for investors, they even ensure late submission penalties aren’t a concern.

What Are Crypto Taxes?

Now that we’ve discussed nine different ways how to avoid crypto tax, let’s turn our attention to what these crypto taxes actually are. In this section, we’ll use the US as an example, so investors based in other countries would be wise to do their own research on how crypto is taxed – because rules differ significantly in different regions of the world.

The tax system in the US is relatively complex, although it’s best to distill crypto taxation into three key areas:

Capital Gains Tax

Regarding how to avoid crypto tax, the most crucial area to be aware of is capital gains taxation. Capital gains tax is based on the gains made when an investor sells or disposes of a crypto asset. For example, if an individual invested $2,000 in Ethereum and sold a few years later for $4,000, then capital gains tax would be owed on the $2,000 profit.

To make matters more complex, capital gains tax is broken down further into short-term and long-term holding periods. Short-term periods are defined as anything less than one year, while long-term periods are longer than one year. These long-term periods benefit from more favorable tax rates – which we discussed earlier in this article.

US capital gains tax rates

Under US tax laws, capital gains are calculated by subtracting the initial purchase price and any fees associated with the selling process. These gains are taxed between 10% and 37% for short-term holding periods and between 0% and 20% for long-term holding periods. 

Income Tax

Investors wondering how to not pay taxes on Bitcoin must also be aware of income tax. In the US, the IRS defines crypto assets as “property,” meaning any income generated from holding these assets is taxable. The exact amount eligible for tax is based on the value of the crypto assets when they are received.

Examples of events that fall under the remit of income tax include crypto mining, staking, and airdrops. This means that any other events, such as buying or trading, fall into the capital gains tax category.

This can get even more complex if an investor is self-employed and earning most of their income through crypto mining. In this case, the investor may also be subject to self-employment tax, which can heighten the tax liability significantly.

US income tax rates

In terms of the exact rate that investors must pay, this can vary depending on the investor’s income level. However, it ultimately ranges between 10% and 37%, with lower-income individuals paying less tax.

One final consideration regarding crypto-based income tax is that individuals who receive payment for goods/services will still need to pay tax on the “fair market value” of the asset when it is received.

The fair market value is essentially the price that the asset could be sold on the open market – so if an individual received BTC worth $5,000 for providing a service, that’s the amount that must be reported on their tax return.   

How Do I Calculate Tax on Bitcoin & Other Cryptocurrencies?

Understanding how to spend crypto without paying taxes can be tricky, especially since the rules are constantly being updated and vary from country to country. However, as we’ve highlighted up until this point, there are several approaches that investors can take to calculate their tax and ensure the tax burden is as low as possible.

There are a few steps that investors must take to determine how much tax they’ll have to pay. Broadly speaking, these are:

1 – Determine Whether Short-Term or Long-Term Taxes Are Owed

As noted, capital gains taxes differ depending on how long the crypto asset has been held. Anything over one year is considered “long-term,” while anything less than one year is considered “short-term.” Ultimately, the US government does this to discourage speculative trades and incentivize investors to hold assets for extended periods.

As such, crypto investors must check back and determine the exact date that they purchased their assets. Importantly, crypto assets held for exactly one year (365 days) are still considered long-term holds. 

2 – Calculate Gains or Losses for Each Transaction

The next step is to calculate the gains (or losses) generated for each crypto transaction. By doing this, investors can get an idea of their “total” tax liability – assuming they’ve made a positive return.

crypto profit/loss calculator

The easiest way to calculate gains/losses from a crypto transaction is to take the price that was paid and subtract it from the selling price (minus any applicable selling fees). For example, if an investor invested $5,000 in one of the best penny crypto projects and sold a few months later for $15,000, the capital gain would be $10,000.

3 – Check for Transactions That Are Considered Taxable Income

The final step is to verify that no additional transactions would qualify as “taxable income.” These transactions are generally crypto earned through mining, airdrops, yield farming, staking, or other similar actions. As mentioned earlier, crypto received as payment for goods or services would also be considered “income.”

From a tax standpoint, the taxable amount is deemed as the crypto asset’s value on the day it is received. So, if an individual sold an item online and received 0.1 BTC for it, which was worth $2,500 at the time, that amount would be added to the individual’s annual income.

ETH staking income

Once all of these steps are complete, investors will have a comprehensive overview of how much they have made in capital gains and also whether they’ll have additional crypto-based earnings that will contribute to their yearly income. In turn, these investors can then file their tax returns, either with the help of a crypto tax software package or a tax professional.

As a final note – this discussion has used the US tax system as an example, with the information presented being accurate at the time of writing. Taxation is exceptionally different in other countries and can change each year, so investors are urged to do their own research and consult an accountant if they’re unsure about anything.

Are You Legally Allowed to Avoid Tax on Crypto?

As highlighted, cryptocurrencies differ significantly from “traditional” currencies like the US Dollar and the Great British Pound. The critical difference is that, unlike these currencies, cryptocurrencies aren’t controlled by a centralized entity. Given this distinction: is it legal to avoid tax on crypto?

Put simply – yes, it is. This may come as a surprise to many readers, given the connotations of “avoiding” tax. However, at least in the US, tax avoidance refers to the use of legal methods to lower an individual’s or business’ tax burden. Thus, all the strategies discussed in this guide ultimately fall into this “tax avoidance” category.

In contrast is “tax evasion.” As noted by Cornell Law School, tax evasion involves using illegal means to avoid paying taxes. This usually consists of an individual or business lying about how much money they’ve earned, either by underreporting income or exaggerating their deductibles.

IRS crypto tax laws

Given this information, the key for investors is to ensure they’re truthful and accurate when filing their tax returns. Technological advances now mean that the IRS can easily track crypto transactions since brokers and exchanges must record what occurs on their platforms. Even if a broker/exchange doesn’t wish to hand over client data, the IRS can demand it legally.

The only way the IRS can’t view a citizen’s crypto holdings is if they are stored on an external hardware wallet. Since these wallets aren’t connected to the internet, there’s no way for any entity to access them and analyze the contents. Regardless, crypto investors must still ensure they’re reporting accurately to stay within the confines of the law.

Conclusion – How to Spend Crypto Without Having to Pay Tax

In summary, understanding the tax requirements when investing in the crypto market is crucial for individuals and businesses alike. With the regulatory landscape continually changing, staying up-to-date with the latest tax laws is essential for minimizing liabilities.

One way in which investors can minimize their liabilities is by purchasing items from online marketplaces like BitDials. These marketplaces allow investors to offset some of their accrued liabilities while gaining access to high-quality items.

BitDials boasts a diverse selection of watches, cars, designer bags, and high-end jewelry for investors to buy using digital currencies like BTC and ETH. Moreover, the marketplace ships worldwide and offers 24/7 customer service, ensuring the shopping experience is as streamlined as possible.


How do I avoid paying tax on crypto?

How can I legally pay less tax on crypto?

What are the tax rates if you have Bitcoin?

How does Bitcoin taxation work?

How can I stop paying tax on Bitcoin?

Connor Brooke
Connor Brooke

Connor is a Scottish financial expert, specialising in wealth management, equity investing, and blockchain technology. Based in Glasgow, Connor writes full-time for a wide selection of financial websites, including Techopedia, whilst also helping write business plans for SMEs seeking funding. Holding a Bachelor’s degree in Finance from the University of Strathclyde, and a Master’s degree in Investment Fund Management from the University of Glasgow, Connor has extensive knowledge in the investing space. He has authored two theses on mutual funds and the UK market - one of which was chosen for publication.