There’s no two ways around it anymore – people who engage with cryptocurrencies are expected to fulfil their tax obligations on profits earned from their crypto-related activities. However, not every crypto user realizes just how much they could save if they understand how cryptocurrency tax deduction works.
Understanding crypto tax deductions could make a big difference in your next tax filing, as it would help reduce your overall tax liability. This brings the question: What exactly are cryptocurrency tax deductions, and how can they help you save money on your bitcoin taxes?
What Are Crypto Tax Deductions and Why They Matter in 2025?
Crypto tax deductions are expenses that tax authorities allow taxpayers to deduct from their taxable income. Some of these costs include money you spend to manage or earn digital assets, for example, trading fees, mining electricity costs, and money spent on protecting your crypto assets.
Tax authorities like the Internal Revenue Service (IRS) in the United States and His Majesty’s Revenue and Customs (HMRC) in the United Kingdom classify cryptocurrencies as either property or stocks. So any money spent on making or protecting such assets is deductible during tax filing.
Imagine that you run a small mining operation and your electricity costs at the end of the year amount to $2,500. This amount is deducted during your tax filing, thus reducing your taxable income. The more deductions you have, the lower your taxable gains, and the more money you save.
Common Crypto Expenses You Can Deduct
Your crypto tax deductions depend on what you do in the market. This means that the tax deductions for a crypto miner differ from those of an individual investor or trader. That said, let’s take a look at some of the expenses that can be deducted for different categories of taxpayers in the crypto industry.
Individuals (Traders and Investors)
This includes those who focus on buying, selling, and holding digital assets for personal use. Here are some of the tax deductions that can help you save money on your bitcoin and crypto taxes.
Transaction fees: These fees include all the costs you spend on buying, selling, swapping, and transferring crypto assets on exchanges, personal wallets, and dapps. Examples include gas fees on blockchain networks and trading fees.
Subscription Costs for Tracking Tools: These are expenses incurred for subscribing to or paying for portfolio tracking software or tools that track your crypto activities to keep records or calculate your profits and losses. Examples of such tools are crypto tax software like Koinly and CoinTracker.
Professional Help: The money you spent on the services of experts like accountants and tax consultants to handle your crypto taxes can qualify as a deduction on your tax report.
Security Costs: As mentioned earlier, the costs you incurred on protecting your digital assets can also be deducted from your crypto gains. In other words, money you spent to buy a hardware wallet or for services like encrypted backups and audits, which help protect your cryptocurrencies, is tax-deductible.
Miners and Validators
Miners and validators are important players in the crypto world. Miners confirm transactions and add new blocks using high-powered computers that consume large amounts of energy. On the other hand, validators perform similar tasks by staking coins instead of relying on high-powered rigs, which reduces the amount of energy required for keeping the network active. While miners operate in proof-of-work blockchains like Bitcoin, validators are found on proof-of-stake networks like Ethereum and Solana.
Mining and validation operations are often treated as business activities, which gives taxpayers more expenses that they can remove from their profits. Some of the tax deductions allowed for miners and validators include:
Electricity and Equipment Costs: The money spent on electricity bills and mining equipment can help reduce taxable income.
Depreciation: Mining rigs and other computing machines used for running the mining operations wear out over time. As such, you can deduct part of their depreciation cost each year in your tax report.
Internet and Maintenance: Costs such as internet access, cooling systems, and general maintenance necessary for running the operation can add up to something tangible, which counts as deductible.
Businesses
Businesses and companies that use crypto as part of their daily operations also have deductions that can reduce their tax obligations. Some of these include:
Marketing and Management Tools: Many businesses that pay for ad campaigns, analytics tools, and automation bots directly linked to trading can report them as deductible.
Legal and Advisory Costs: Other major expenses for businesses that are deductible include money spent on licenses, compliance, and professional services related to income-generating activities.
Whether you are an individual investor, trader, miner, or business owner, it is important to keep proof of every deduction. This is because the taxman will not accept your claim without documented evidence, such as receipts and invoices.
Understanding Capital Gains, Losses, and Write-Offs
Aside from the expenses discussed above, understanding concepts such as capital gains, losses, and write-offs will help increase the amount of money you can save on your Bitcoin taxes without breaking any tax rules.
Most countries, as stated earlier, classify cryptocurrencies as capital assets (the same category as stocks and property). That said, a taxable event happens when you buy, sell, or swap your cryptocurrency, either for another asset or for fiat.
The difference between what you paid to purchase the asset and what you sold it for would determine whether you made a profit or a loss. If you sold the asset for a higher amount than you bought it, then you have made a capital gain, and if you sold it for a lesser amount, that is a capital loss.
Tax authorities allow taxpayers to use their losses to offset their gains, which helps reduce their taxable income. This offset is what we refer to as write-offs, which allows you to pay taxes on your net profit, instead of your total earnings. For instance, you lost $3,500 from investing in Ethereum, but made $7,500 from your bitcoin trade. Instead of paying taxes on your $7,500 profit, you will only pay taxes on $4,000 ($7,500 minus $3,500).
How to Use Crypto Tax-Loss Harvesting
Tax-loss harvesting is one effective way to reduce your tax liability during the tax season. The idea is quite simple: sell off your digital assets that have dropped in value to offset the profits you made from your other assets. Although this may seem like a bad one at first, it is a strategic way to reduce your tax obligations.
How does it work? The first step is to review your portfolio and find the assets that are trading below your purchase price. Sell these tokens before the end of the tax year to realize your losses. Once that is done, you can use the realized loss to offset the taxable gains made from your profitable assets. However, you have to keep accurate records of your transactions, including purchase and sale dates and prices, before you can claim such write-offs.
One important thing to note about tax-loss harvesting is the wash-sale rule, which prevents investors from claiming a tax loss if they purchase the same asset within a short period after selling. In the UK, the wash-sale period is 30 days. In other words, to record the loss as a write-off, you must wait at least 30 days after selling before you can rebuy the coin. In the US, however, crypto taxpayers are currently exempted from the wash-sale rule, which means investors could rebuy the asset at any time after selling.
The best time to use this strategy is during market downturns, when several assets lose their value almost at the same time.
Other Smart Crypto Tax Saving Strategies for 2025
Aside from taking advantage of deductions and loss harvesting, there are some other simple and smart crypto tax saving strategies that can help you lower your Bitcoin taxes without breaking any laws.
HODL.
When it comes to taxes, HODLing can be a smart way to reduce your tax liability. This is because most tax authorities offer lower tax rates to taxpayers who hold their crypto assets for at least 12 months. In the US, for example, holding your assets for more than a year puts them in the long-term capital gain category, which reduces the rate to 0%, 15%, or 20%, depending on your income level. Similar rules apply in the UK and other European countries, like Austria, France, and Germany.
Crypto Donations
Donating some of your crypto assets to registered charity organizations is another way to lower your tax obligations. Tax authorities allow taxpayers to deduct the donated asset at fair market value because it is treated as a non-taxable transfer.
Crypto Loans
Another smart way to reduce crypto taxes is through crypto loans. These types of loans let traders and investors borrow money using their crypto assets as collateral. This way, they don’t have to sell their assets, which helps to prevent taxable sales. However, it is essential to note that crypto loans carry risks, as they may result in liquidation if the value of the assets falls below a certain threshold.
Crypto Tax Software
The easiest way to save on Bitcoin taxes is to stay organized. Using crypto tax software like Koinly and CoinLegger is a smart way to track your transactions and minimize errors that can cost you some serious money. These tax tools automatically calculate your gains and losses while highlighting deductible expenses and crypto tax loss harvesting opportunities. They can also generate ready-to-file tax reports for different tax agencies.
How to Calculate and Track Your Deductions
The first step involved in calculating your crypto tax deductions is identifying which crypto activities generate taxable income for you. This includes trading, mining, and crypto-related business operations. Once you have cleared that, the next step is to list out the expenses you incurred that are directly tied to the activities, such as electricity costs, trading fees, and gas fees. This will amount to your total deductible for the tax year.
If you don’t want to go through the stress, or crunching numbers isn’t really your thing, then you can use a crypto tax calculator to make things a lot easier and faster.
Crypto tax software can handle most of the heavy lifting, including complex activities such as DeFi, NFTs, staking, and cross-chain transactions. However, it is wise to hire a licensed professional to review your tax reports if need be.
FAQs
What qualifies as a crypto tax deduction?
Any money that you spend to earn, manage, or protect your cryptocurrencies may qualify as a tax deduction. Some examples include trading fees, network fees, and crypto tax software subscriptions, among others.
Can I deduct crypto losses?
Yes. You can use your realized capital losses to offset your capital gains, which lowers your taxable income. However, depending on your jurisdiction, you must ensure that such a loss complies with the wash-sale rule.
Are gas fees deductible?
Yes, gas or transaction fees paid during swaps or transfers qualify as deductible if they are directly related to the activities of your taxable income.
Do I need receipts for every crypto transaction?
100%. Without proof that you actually incurred expenses or losses, you cannot validate your claims of deductions or write-offs. This is why it is vital to keep receipts, invoices, and other records for the transactions you make.
Conclusion
Cryptocurrency tax rules don’t have to be confusing, and filing your taxes becomes easier once you understand how crypto tax deductions and Bitcoin tax write-offs work. Also, keeping receipts and tracking your expenses can make a huge difference when it’s time to file your taxes, and you can do this manually or with a sophisticated crypto tax tool.