Legal Strategies to Avoid Crypto Taxes in 2025

There are legal strategies you can use to avoid or minimize crypto taxes. Here are the top methods for US taxpayers:

1. Crypto tax loss harvesting

Sell crypto at a loss to offset gains and reduce your tax liability. Complete trades before the tax year ends to lock in the benefit.

Learn more in our guide to crypto tax loss harvesting.

2. Use HIFO/TokenTax minimization accounting

HIFO (Highest In, First Out) prioritizes selling the most expensive assets first, reducing taxable gains for the year.

Learn more about crypto accounting methods.

3. Donate your crypto and give cryptocurrency gifts

Donating crypto to IRS-recognized nonprofits avoids capital gains tax and may be tax-deductible. Gifting crypto to friends or family is also tax-efficient.

Learn more: are crypto gifts taxable?

4. Invest for long-term capital gains

Holding crypto for over a year qualifies for lower, long-term capital gains tax rates, which range from 0%-20%.

5. Simply don't sell your crypto

Holding your assets avoids triggering taxable events. If you need liquidity, consider taking out a crypto loan instead.

Here are practical ways to reduce your crypto taxes while staying IRS compliant:

Harvest your crypto losses

Selling at a loss can offset capital gains and reduce your overall tax bill. Losses can also carry forward to future years.

Learn more in our guide to crypto tax loss harvesting.

Hold crypto assets long term

Holding crypto for more than 12 months qualifies for reduced long-term capital gains tax rates.

Take profit during a low-income year

Selling during a year with low personal income may lower the tax rate you pay on crypto gains.

Calculate your crypto gains with our free crypto profit calculator.

Give cryptocurrency gifts and donate crypto

Gifting avoids capital gains taxes, and donating to IRS-approved nonprofits can result in tax deductions.

Learn more about tax deductions for crypto donations.

Buy and sell crypto via your IRA or 401(k)

Using self-directed IRAs allows you to trade crypto tax-advantaged within retirement accounts.

Take out a crypto loan

Borrowing against your crypto avoids taxable disposals while providing access to funds.

See our expert picks of the best crypto loans.

Move to a crypto tax-free country

Relocating to jurisdictions with no crypto taxes can minimize your tax liability. However, US citizens remain subject to IRS rules.

Learn more about crypto tax free countries.

Keep complete records of your crypto transactions

Accurate records are essential for reporting crypto taxes and avoiding penalties.

Hire a crypto tax professional

A crypto tax expert like ours at TokenTax can help you navigate IRS rules and identify personalized tax-saving opportunities.

Use crypto tax software

Crypto tax software like TokenTax can simplify reporting and reduce errors. Tools like ours allow you to import transactions, calculate your gains and losses automatically, and generate reports for accurate tax filing. Our proprietary minimization accounting method ensures you pay as little tax as possible while staying compliant.

Use our free crypto tax calculator.

If you trade crypto, you know about various fees exchanges charge per transaction. While these fees can reduce your trading profits, they also offer a tax advantage. By including such fees in your cost basis (that is, the total cost of your crypto transactions) you increase the investment amount and reduce the capital gains realized when you report your taxes.

This method to account for capital gains plus exchange fees can play a crucial role in lowering your overall tax obligation. It’s essential to keep track of these expenses accurately. When in doubt, consult a crypto tax professional for further guidance.

Crypto taxes apply when selling, trading, or disposing of crypto, resulting in capital gains or losses. Mining, staking, or yield farming income is taxed as regular income. Purchasing crypto with fiat, gifting, or transferring between wallets generally does not trigger taxable events.

How to reduce your crypto taxes FAQs

How can I avoid cryptocurrency taxes

You can legally minimize taxes with strategies like tax loss harvesting, HIFO accounting, and long-term holding.

What happens if you don't report crypto on taxes

Failing to report crypto taxes can lead to penalties, interest, and criminal charges. Amending prior returns can help resolve missed reporting.

Do you pay tax on crypto if you reinvest it

Yes, reinvesting crypto is treated as a taxable event, as the IRS considers it a disposal subject to capital gains tax.

Do you have to pay taxes on cryptocurrency if you spend it

Yes, spending crypto is a taxable event. Capital gains taxes apply if the asset has appreciated since you acquired it.

How long do you have to hold crypto to avoid capital gains

Holding crypto for more than 12 months qualifies for long-term capital gains tax rates, which are lower than short-term rates.