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Tips To Save Crypto Taxes

Updated on: Jun 7th, 2024

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9 min read

Cryptocurrencies have become a popular investment option over the past few years. However, with the increase in popularity, the tax implications of investing in cryptocurrencies have become a major concern for investors. Taxes on cryptocurrency investments can be complex, and it is important to understand how to save tax on crypto to maximise your profits. 

How To Save Crypto Taxes?

  • Keep Accurate Records

One of the most important things you can do to save on crypto taxes is to keep accurate records of your transactions. This includes keeping track of the date and time of each transaction, the amount of cryptocurrency bought or sold, the cost basis, and any fees associated with the transaction. Keeping detailed records will help you accurately calculate your gains and losses, which will ultimately help you save on taxes. This is possible by leveraging the crypto tax software or crypto accounting tools to aggregate all the transactions from your exchanges and wallet. This will help you track the details accurately.

  •  Plan ahead: 

Planning before you engage in any trades is very important. Since any such transactions or trades might have tax implications. For E.g Selling crypto at a loss, you might not be able to set off the loss against other gains in crypto. Thus careful planning is essential. 

  • Hold Cryptocurrency for More Than a Year

You may qualify for long-term capital gains tax rates if you hang onto your Bitcoin investment for some time greater than a year. Long-term capital gains tax rates are generally lower than short-term capital gains tax rates, which means you can save on taxes by holding your investment for a longer period. However it is important to note that in India you will not get the benefit of Long term capital gain tax rates. Irrespective of the holding period all such transaction crypto are taxable at slabs rates

  • Use a Crypto-Specific Tax Software

Using crypto-specific tax software can help you save on taxes by automating the process of calculating your gains and losses. These software programs can also help you keep track of your transactions and generate tax forms for you. Some popular crypto-specific tax software programs include Koinx,  Koinly, Coin Tracking, Zen Ledger, and CryptoTrader.Tax.

  • Consult with a Tax Professional

If you are unsure about how to save on crypto taxes, it may be beneficial to consult with a tax professional. A tax professional can help you navigate the complex tax laws surrounding cryptocurrency investments and can provide personalised advice based on your individual situation. They can also help you identify additional tax-saving strategies that may apply to your specific circumstances.

  • Keep Up-to-Date With Tax Laws

The tax laws surrounding cryptocurrency investments are constantly evolving, so it is important to stay up-to-date with any changes that may affect your tax liability. Following cryptocurrency news and consulting with a tax professional can help you stay informed about any changes in tax laws that may affect your investments.

Common Mistakes To Avoid In Crypto Taxes

While there are several strategies to save on crypto taxes, there are also some common mistakes that investors should avoid to prevent any potential tax liability issues. 

  • Not reporting all cryptocurrency transactions

Some investors may be tempted not to report all their cryptocurrency transactions to the Income tax department. Crypto transactions made in Indian exchanges will be tracked by the Income tax department after the implementation of the TDS provisions under section 194S and FIU guidelines. The Indian government has blocked the URLs of all the non-compliant international exchanges. Also, transactions in private wallets are easily traceable in public blockchain after in-depth scrutiny using tools like Ciphertrace, etc. Failing to report all transactions can result in penalties and interest charges.

  • Not understanding the tax laws

The tax laws surrounding cryptocurrency investments are complex and are constantly evolving. Investors should take the time to understand the tax laws and seek the advice of a tax professional if necessary. Failing to understand the tax laws can result in higher tax liability or potential legal issues.

  • Not using reputable tax software

Using reputable tax software can help investors save on crypto taxes by accurately calculating gains and losses and generating tax forms. However, using unreliable or untested tax software can result in inaccurate calculations and potential legal issues. Investors should do their research and choose reputable tax software that is specifically designed for cryptocurrency investments.

  • Not considering the tax implications of mining and staking

Mining and staking are popular ways to earn cryptocurrency, but they also have tax implications. Investors who mine or stake in cryptocurrency may be required to report their earnings as income and pay taxes on them. Failing to consider the tax implications of mining and staking can result in a higher tax liability.

Investors should avoid common mistakes such as not keeping accurate records, not reporting all cryptocurrency transactions, not understanding the tax laws, not using reputable tax software, not considering the tax implications of mining and staking, and not considering the tax implications of exchanging cryptocurrency for goods or services. By avoiding these mistakes and following best practices, investors can save on crypto taxes and maximise their profits.

What Is Crypto Tax Software?

Cryptocurrency has become increasingly popular, and as a result, more people are investing in it. However, as cryptocurrencies are not subject to the same tax laws as traditional investments, it can be challenging to keep track of the taxes owed on cryptocurrency investments. This is where crypto tax software comes in handy.

Crypto tax software is a tool that assists cryptocurrency investors in managing their taxes. It can track and calculate taxes owed on cryptocurrency investments and generate tax reports for filing with the relevant tax authorities. 

Portfolio Tracking: Crypto tax software can track the value of your cryptocurrency portfolio over time. It can also track your transactions, including purchases, sales, and transfers, and calculate your gains or losses on each transaction.

Tax Calculation: Crypto tax software can calculate your tax liability on cryptocurrency investments based on your country's tax laws. It can also generate tax reports, including Form 8949, which is used for reporting capital gains and losses.

Automated Import: Many crypto tax software tools can automatically import your transaction data from popular cryptocurrency exchanges and wallets, saving you time and effort.

Multi-Currency Support: Crypto tax software can handle multiple cryptocurrencies, including Bitcoin, Ethereum, Litecoin, and many others.

Security: Crypto tax software typically uses top-level security measures to ensure that your data is safe and secure.

Some popular crypto tax software tools include Koinx, Koinly, Cointracking, and CryptoTrader.Tax, and TaxBit. These tools offer a range of features and pricing plans to suit different needs.

Conclusion:

Saving on crypto taxes can be a complex process, but by following these tips, you can maximise your profits and minimise your tax liability. Keeping accurate records, using tax-loss harvesting, holding cryptocurrency for more than a year, using crypto-specific tax software, donating cryptocurrency, consulting with a tax professional, and staying up-to-date with tax laws are all strategies that can help you save on crypto taxes. 

By taking the time to understand these strategies and implementing them into your investment plan, you can save on taxes and achieve greater financial success in the world of cryptocurrency.

Related Articles

  1. 10 ways To Save Crypto Taxes
  2. What Is Crypto?
  3. Cryptocurrency Taxation Guide - 2024

Frequently Asked Questions

How do I avoid income tax on cryptocurrency?

Capital gain on cryptocurrency is accrued only when they are actually sold and realised. Thus as long as you don’t sell the cryptocurrency against another crypto no tax implication. This includes transfer from one wallet to another where no tax will be levied.

How is tax deducted from crypto?

TDS on crypto is levied by Indian Exchanges or exchanges compliant with FIU at the rate of 1% of the sale value. Such TDS withheld will be reflected in your Form 26AS and can be claimed as a tax credit while filing your income tax return.

Which country has no crypto tax?

Countries like El Salvador, Portugal, Germany, Cayman Islands does not have crypto tax.

What happens if you don't pay tax on crypto?

It is important to declare your crypto gains in your Income tax return. Non Disclosure might attract penal provision of Income tax act under section 68,69 of Income tax act for undisclosed money, investment etc. Since crypto is popularly used as a medium for illicit activities non disclosure of such transaction in your ITR might attract much more severe implication under other provisions like Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Foreign Exchange Management Act (FEMA), 1999 etc.

How do I report crypto income in ITR?

Capital gain on sale of crypto must be declared in Schedule VDA of your ITR. It is important to provide trade level details. Income in the nature of Salary, Other source in form of crypto can be declared in the respective heads of income.

 

What are the crypto exchanges in India?

Some of the popular exchanges compliant and registered with Indian FIU includes, Zebpay, Wazirx, Coindcx. Recently international exchange like Kucoin is also registered with FIU thereby making it easier and to trade in tax compliant exchanges.

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Quick Summary

Investing in cryptocurrencies can have complex tax implications. Strategies to save on crypto taxes include keeping accurate records, planning ahead, holding crypto for over a year for long-term gains, using specific tax software, consulting with a tax professional, and staying updated on tax laws. Avoid mistakes like not reporting all transactions, not using reliable tax software, and overlooking tax implications of mining and staking. Awareness and appropriate actions can help investors minimize tax liabilities and maximize profits.

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