11 Ways to Avoid Cryptocurrency Taxes in 2025 (Step-by-Step)

Focus on Investing and Avoid Short-Term Capital Gains

In many jurisdictions, the duration you hold your cryptocurrencies directly affects the rate of your taxes. Selling your coins within the first 12 months after you have purchased them would most often than not trigger short-term capital gains. These are usually taxed at higher income-tax rates.

On the other hand, if you hold your crypto for longer than a year, this would usually qualify you for long-term capital gain rates, which can be 0%, 15%, or 20% in the US or even lower in other jurisdictions.

The strategy here is very simple:

1. Maintain a trade record that keeps proper purchase dates and cost basis for each crypto you buy.
2. Mark incoming taxable events on your calendar (avoid sales within the 12-month window, if possible).
3. Consider selling the older lots first when you need liquidity, provided LIFO is available in your jurisdiction (see the section on choosing a cost-basis method below).
4. Coordinate larger sales with expected changes in income (e.g., deferring to a year with expected lower income; see the section on timing below).
5. Use a crypto tax software to tag purchase lots and produce reports that are ready for audits (see below).

Use Tax-Loss Harvesting

You’ve probably heard the term “tax-loss harvesting” quite a bit. It simply means selling crypto assets that have fallen below your average purchase price to realize a loss. This loss, then, offsets your taxable gains.

Example:

You bought BTC at $10,000 and sold it at $20,000, therefore realizing a profit of $10,000. However, you also bought ETH at $4,000, and its price has now dropped to $2,000. You can sell that ETH and realize a $2,000 loss. This loss will then offset your $10,000 profit, and your taxable income will amount to $8,000.

The critical part here is timing the sales properly – they have to be done before the end of the year. You also need to maintain precise transaction records, which include the dates, cost basis, and sale proceeds.

Here is a pro tip if you are in the US:

You can repurchase the asset you sold immediately after. In some countries, this is referred to as “wash trading,” and there are rules that restrict any repurchases within 30 days. However, in the US, there is no such rule. This can be very effective in bear markets, and it can compound savings across years if unused losses are carried forward, which is one of our next strategies.

Donate Crypto to Charity

Charitable donations of cryptocurrencies that have appreciated in value can yield major tax advantages. In some jurisdictions, if you donate to registered charities, this would be treated as a non-taxable event, meaning you wouldn’t have to pay capital-gains tax on the appreciation. What is more, you can oftentimes deduct the fair-market value of the crypto you’ve donated when you file your crypto taxes. For example, if you have bought BTC at $10,000 and it is now $20,000, you can donate the $20K – this will spare you the $10K in appreciation, and it would also allow a $20K deduction (there are annual deduction limits, though).

Step-by-step strategy to follow:

1. Confirm the recipient of your charity is an IRS-recognized public charity.
2. Donate cryptocurrency directly from your wallet to the charity’s wallet or use a donor-advised platform.
3. Request and obtain a written acknowledgment and a receipt, which clearly shows the date and the fair-market value of your donation.
4. If the donation is higher than $5,000, obtain a qualified appraisal and complete IRS Form 8283.
5. Record transaction hashes and receipts to support the valuation and the transfer of funds.
6. Consult your tax advisor about limits on charitable deductions and if there are potential carryforwards.

Hold Crypto in Tax-Advantaged Retirement Accounts

Some countries allow users to gain exposure to cryptocurrencies through retirement or pension accounts that offer tax-deferred or tax-exempt growth. For example, in the United States, self-directed IRAs, as well as 401(k)s can hold Bitcoin (and a few other cryptocurrencies) through specialized custodians.

This means that gains within these accounts are not taxed until you withdraw them (that’s valid for traditional IRAs) or may never be taxed (that’s valid for Roth IRAs). This means that you will be able to buy, sell, and rebalance your positions without necessarily generating immediate taxable events.

Similar frameworks exist in other countries as well. For instance, in the UK, there are specific SIPP arrangements.

In any case, you must weigh some of the drawbacks such as considerably higher fees, storage limitations, as well as potential withdrawal penalties. Not all providers are equal when it comes to security or regulatory oversight. If you’re a long-term investor or a high-net-worth individual, this can be a very powerful structure and a completely legal way of compounding your crypto investments while also deferring or avoiding capital-gains taxes entirely.

Choose a Favorable Cost-Basis Method

This is specific. It’s important to understand that your cost-basis method (read: the way you match sold coins to their purchase price) will have an immediate impact on the size of your reported gains. There are a few common approaches here. The first one is FIFO (first-in, first-out), and specific identification (where you can select which coins you sold exactly). The last one is also known as LIFO.

Example:

If you bought 1 BTC at $10,000 and 1 BTC $20,000, and then you sell one at $40,000, FIFO would treat the $10,000 coin as sold ($30,000 gain), while LIFO uses the $20,000 coin ($20,000 gain). If you live in a country that allows this, choosing the method that objectively yields a smaller gain can legally lower your tax.

In the US, the IRS requires consistency and documentation. In other words, you must be able to prove which coins were sold. This usually happens through exchange records or your wallet transactions. That’s where using a good crypto tax software will definitely help you automate these calculations.

Carry Forward Capital Losses

If your annual losses exceed your annual gains, you should be able to carry those losses forward to offset any future profits. This is completely legal in most jurisdictions. In the US, for instance, up to $3,000 of net capital losses can be deducted against ordinary income per year, with the remainder carried forward indefinitely. There are similar provisions existing in the United Kingdom and Canada.

It happens to anyone – a bad trading year can be depressing, but proper planning and accounting can turn it into future tax savings. That’s why it’s crucial to accurately record all losses, retain the relevant statements from the exchanges, and claim them on your upcoming tax return.

Time Crypto Disposals Across Tax Years

It goes without saying – proper timing can influence your crypto tax bill. For instance, if you sell your crypto in a year when you expect a lower income bracket or more losses to offset them can significantly reduce the due amount.

Example:

Imagine that you have a big spike in your income in 2025 due to additional working contracts or whatever it is. You do not forecast these to be repeatable events, and you expect 2026 to be slower in terms of income. You can delay larger crypto sales until January to potentially save up thousands in taxes. This tactic is 100% legal, but it requires very careful planning of your cash flow and market timing.

That said, you can also realize losses before the end of the year to improve your current-year return.

IMPORTANT:

• •
  Tax year ends on December 31st in the US
• •
  Tax year ends on April 5th in the UK

Classify Mining and Validation Properly

If you mine cryptocurrency or validate the security of a network, the tax treatment will heavily depend on whether this activity can be qualified as a business or as a hobby. When it’s a business, you can deduct certain operating expenses. These include electricity, cooling, internet, maintenance bills, hardware, as well as the depreciation of this hardware. These deductions add up very quickly and can offset your taxable income significantly.

If you are a validator on a Proof-of-Stake network, you should carefully track the fair value of the staking rewards at the time you receive them, as well as any potential slashing events, which may also be expensed.

Optimize Residency

If you haven’t understood by now – perhaps the single most important factor that will determine the amount of taxes you will have to pay is your tax residency. There are some jurisdictions (including Singapore, the United Arab Emirates, and Portugal) that offer very favorable or even zero capital-gains tax on personal crypto transactions. There are other jurisdictions that provide relief through bilateral tax treaties, helping you avoid double taxation when you earn crypto income abroad. Regardless of your situation, staying educated and learning more about how taxes work in your country is essential.

Maintain Excellent Records

This is, without a shred of doubt, the simplest way to legally reduce your tax burden. You have to be both thorough and organized. Keeping accurate records will let you claim every possible deduction, loss, and carryforward that’s available to you. Make sure to keep your transaction histories clean, your receipts for hardware wallets, electricity bills, subscriptions for tracking software, and any potential proof of donations.

Most of the tax authorities, including the HMRC and the IRS, will require you to report digital-asset transactions even if you have no tax due to pay. That’s why it’s critical to keep proper documentation, because it can turn potential penalties into deductions, save you money, and prevent any disputes.

Use Crypto Tax Software

Last, but definitely not least, using a crypto tax software can be a great way to save on your taxes. Many of them have built-in loss-harvesting features, ready-to-file reporting, and a bunch of other features that can help you optimize your taxes. At the same time, these tools will 100% save you both time and effort to accurately prepare your yearly tax declaration.

That said, here are some of the best crypto tax software available on the market, thoroughly compared with all of their features, pricing plans, and all the information you would need.

Do you pay taxes on crypto before withdrawal?

You pay taxes on crypto whenever they are due, irrespective of whether you have withdrawn or not. If there is a qualified taxable event (e.g. a sale, swap, spend, earned income through staking or airdrops), you have to pay taxes with or without withdrawing the proceeds from your exchange or wallet.

Can the IRS see my crypto?

Yes. Following changes in 2025 and upcoming changes in 2026, crypto exchanges and wallets have to submit Form 1099-DA, which displays your digital assets and their cost basis.

Do I pay taxes on crypto I never sold?

If you don’t sell your crypto, you typically won’t owe taxes. However, if you have earned crypto through staking, mining, or airdrops, you owe taxes based on the fair value of the digital assets at the moment you received them.

What is the 30-day rule in crypto?

Also known as the wash sale rule, the 30-day rule means that you have to wait for 30 days before you can repurchase an asset you have sold at a loss. However, this restriction doesn’t apply to crypto as of yet, and loss harvesting is a viable tax reduction strategy.