## What is capital gains tax on crypto?

You pay capital gains tax when you sell cryptos for more than you paid for them.

## How can I minimise my capital gains?

### 1. Make sure your cryptocurrency investment is long term

The US government encourages long term investment by fixing a lower capital gains tax rate for investments held for more than a year, compared to investments held for less than a year. 

### 2. Set aside money in dollars (and not in another cryptocurrency)

When you profit on the sale of a cryptocurrency, determine how much money to set aside in dollars. This depends on two things: how long you owned the cryptocurrency for, and your tax bracket. If you owned it for more than one year, then you pay a lesser percentage of long-term capital-gains taxes and vice-versa. Don’t convert from one cryptocurrency to another if you make a huge profit on the initial cryptocurrency investment. 

### 3. Record your crypto transactions

Keeping detailed records of every crypto transaction ensures you will end up paying the correct amount of taxation. Log data you need, including the date you bought the crypto, the dollar value, the date sold, and the proceeds from the sale. You need all of this data to properly calculate your cost basis and to report your gains. 

### 4. Work with a tax professional

If you have a complex situation, using a crypto tax accountant can save you money. A professional will know specific tax rules and exceptions.

### 5. Gift or donate cryptocurrency and pay zero taxes

Gifting cryptos is the same as gifting stocks: The value of the gift is the fair market value when the cryptocurrency has been gifted. 

Capital gains tax is applied when you sell cryptos for more than you paid for them. Here are 5 tips to minimize your crypto tax.

How to Minimise Crypto Taxes

Ethereum is a highly ambitious cryptocurrency and blockchain project, and is the second most valuable cryptocurrency by marketcap. Ether loans are crypto collateralised loans which means keeping ETH as collateral. Collateral is defined as ‘security pledged for the payment of a loan.’

It is a guarantee that you will do what you say, which in this case is paying back your loan, and if you don’t, you will lose whatever you pledged as collateral. In the ‘real world,’ there are loans which do not require any form of collateral such as credit cards, student loans, or business loans. These unsecured loans do not depend on guarantees in the form of an asset but rely on a person’s reputation.

In Ethereum, like all other decentralised blockchain networks, there is no reputation or personal identity attached to each account. Because of this, decentralized loans must use collateral to guarantee loans and crypto-assets such as Ether function as collateral.

By being able to transfer value through the internet using blockchain and setting it up so that agreements can execute automatically, we are able to have lending.

There are a number of lenders who provide loans for Ethereum. Typically, you just need to register using your email ID and then complete verification by providing personal information. Once approved, directly deposit Ether to your loan provider’s wallet. 

Ethers are usually stored in offline multi-signature wallets. Following confirmation of your deposit over the blockchain, you are issued a loan in your chosen fiat or stablecoin currency according to the agreed LTV ratio.

Algorithms determine the loan amount, which depends on current and historical volatility and market liquidity of the particular assets. The LTV ratio is determined by the asset that you deposit.

In the following example, the loan-to-value (LTV) ratio may range from 20% to 50%: 

If you stake $10,000 worth of ETH, you will be able to withdraw a loan of around $5,000, i.e an LTV less than 50%. 

Placing a mix of assets, the LTV ratio is determined proportionately. With this loan, ETH holders don’t have to sell their ETH, but can achieve liquidity.

## Why take an Ethereum loan?

Ethereum is considered to be a cryptocurrency which should survive in the next few years, given the fact as it has been amongst the top 10 cryptocurrencies since its inception.

Ether holders can get the much-needed liquidity they are searching for without having to close their Ethereum position completely. Most investors use this to buy a home; fund a business or get rid of debt.

It is also an excellent way of lowering taxes by claiming interest paid on your loan, and avoiding capital gains fees.

Ethereum Advantages Over Fiat currency Loans:

- Getting a loan is a relatively simple process, with a number of benefits compared to a traditional fiat currency loan.
- It’s instantaneous. Payments are made and received in a matter of minutes, which is much faster than traditional loans.
- There is no requirement for documentation. No details required.
- Security. No human error is involved. Just smart contracts which rely on algorithms...
- No age limits. You don’t have to be a minimum age to take a loan.
- It’s cheap. The issuance cost is next to nothing.
- Crypto loans are open for business 24 hours a day, 7 days a week. No Bank holidays involved.

The use of lending and borrowing applications has increased during the most recent bear market, because many people who are currently holding crypto-assets do not want to sell them while prices are so low.

By using their assets as collateral, holders can spend money while also keeping their positions for the long term.

Borrowing against crypto assets seems to offer the best of both worlds with the only danger being a risk of the collateral’s value dropping too quickly and a loan getting liquidated.



Ether loans are crypto collateralised loans which means keeping ETH as collateral. Collateral is defined as ‘security pledged for the payment of a loan.’  

How to Get an Ethereum Loan

Depending on what country you live in, your cryptocurrency will be subject to different tax rules. The questions below address implications within the United States, but similar issues arise around the world. As always, check with a local tax professional to assess your own particular tax situation.

## 1. Invest for the long term

The IRS treats all cryptocurrencies as property and not currency for tax purposes. Just like stocks, bonds, and other forms of property, you incur capital gains when you sell or dispose of your property for more than you acquired it for. The government taxes these capital gains differently depending on how long you held the investment. Because the government wants to incentivize long-term investing, the capital gains tax rate is less for investments that are held for more than a year and more for investments that are held for less than a year. This means that if you bought Bitcoin, held it for a month, and then sold it, your capital gains tax rate would be higher than if you waited to sell it a year later.

Holding your cryptocurrency investments for longer than one year can help cut down on your capital gains taxes.

## 2. Give away your cryptocurrency

No, this is not a suggestion to donate all of your hard earned cryptocurrency gains to charity. However, if you gift your cryptocurrency to a family member or a friend, you can partially address your problem with cryptocurrency taxes. In 2018, the IRS allowed U.S. citizens to offer a gift of up to $15,000 without documented proof of the transaction. This is also not a taxable event, so the gift does not trigger a capital gain.

This is a particularly interesting alternative considering that when the recipient of your gift decides it’s time to cash out, that value that’s taxed is based on the market value on that given day. Something to think about as you ponder what to do with your crypto gains.

## 3. Tax loss harvesting

Tax loss harvesting is a common strategy where you sell your assets that will realize a capital loss. All you need to do is look at your investments and see which ones you bought for more than they are currently worth. By selling at a loss, you can potentially dramatically lower your net capital gains and thus reduce your taxable income. Bitcoin tax calculators have built in tax loss harvesting tools that you can use automatically detect which coins present the most powerful tax loss harvesting opportunities.

## 4. Take out a crypto loan

Because of the volatility present in the crypto markets, it might often make sense to seek short term gains. However, what if there was a way to “cash out” now but still benefit from the longer-term capital gains tax rate? This is where borrowing against your crypto holding can really pay off and minimize your tax liability.

Selling crypto is a taxable event. Exchanging crypto-for-crypto is a taxable event. Borrowing money against your crypto is NOT a taxable event. 

Let’s say you bought $1000 of Bitcoin in June of 2017 and saw that investment grow to $30,000. You would face a $29,000 capital gain if you cash out now. Depending on your yearly income, in this example let’s say it is $60,000, you would face a short term capital gains tax on that gain of 25%, and you would owe $7,250 to the government.

## 5. Buy cryptocurrency through your IRA or 401-K

Using an IRA or 401-K to defer tax payments is a popular way to reduce tax liabilities. The same is present in the crypto markets. By using your retirement account to purchase cryptocurrencies, you can defer paying tax (or even avoid paying it at all): all the income and gains generated by the retirement account will return into the account with tax deferred or (in the case of a Roth IRA), with no tax applied at all. This means your crypto investment can grow without being hindered by the need to take money out in order to pay a tax bill.

## 6. Keep detailed records

To ensure that you are paying the correct amount of taxes on your crypto capital gains and capital losses, you should keep detailed records for every crypto transaction that you participate in over the year. The data you need to collect for these records includes the date you acquired the crypto, the dollar value, the date sold, and the proceeds from the sale. You need all of this data to properly calculate your cost basis and to report your gains. If you haven’t been keeping a detailed record of your crypto transactions, it could save you a significant amount of time to use a crypto taxes calculator that automatically calculates your cost basis and capital gains liability for you. This is one of the best ways to ensure you are minimizing your crypto taxes.

Paying taxes isn’t always the number one item on everyone’s to do list. This is especially true if you have accumulated significant gains from investing in cryptocurrencies. What many investors often don’t consider are the opportunities to actually reduce their tax liabilities from their crypto investing. This article discusses strategies that you can use to help minimize your crypto tax liability.



Paying taxes isn’t always the number one item on everyone’s to do list. This is especially true if you have accumulated significant gains from investing in cryptocurrencies.

Tactics for Lowering Your Crypto Tax Liability 

## Why is it beneficial not to sell my crypto?

Given that most investments increase over time, you may not want to sell before they reach maturity. A loan does not involve a taxable event, so it won’t attract capital gains tax. In addition, forks which occur during the term of your loan may be passed back to you.

## What do I need?

In some cases, you don’t need good personal credit or even a bank account. However, it can take a few days to get the go ahead, and your interest rates could be high, at least initially.

## What can the loan be used for?

Loans are often used to invest in real estate. Other reasons include paying tax bills and financing different investments.

Crypto loans usually come from collateralising crypto assets. In traditional fiat currency loans, assets normally take the shape of a home or business. The main benefit of crypto lending is that you don’t have to sell any of your assets. 

Why and How to Get a Loan on Your Crypto

## Why is compound interest so valuable to crypto investors?

The longer you save, the more interest you will earn on your initial investment. And the more you add over time, the higher your potential long-term earnings can be.

## How does it work?

Compound interest comes into play when you don't pull out your initial investment, but instead reinvest it all.

As soon as you begin saving your cryptocurrency, it will compound on a daily, weekly or monthly basis. The higher the compounding frequency, the better. For example, at the end of the first month, an initial deposit of 1 Bitcoin would grow to 1.005 BTC.

In the second month, you now earn interest on 1.005 BTC, increasing the amount of interest you will earn going forward.

This process repeats itself over and over. The power of compound interest increases with the amount you provide into the account over time.

## Where can I earn compound interest on my crypto investment?

To see where you can earn compound interest on your crypto assets check our latest comparisons of [crypto interest accounts](https://www.defi-nerd.com/compare-crypto-interest-accounts/)



Compound interest is literally, “interest on interest”.

Compound interest (or compounding interest) is interest calculated on the initial principal, including all of the accumulated interest of previous periods of a deposit or loan.

Compound interest is literally, “interest on interest”. Compound interest (or compounding interest) is interest calculated on the initial principal, including all of the accumulated interest of previous periods of a deposit or loan.

What is Compound Interest?

A crypto interest account or savings account is just like any other savings account that earns interest, however, it's based on crypto assets. 

The most important things to look out for when choosing a crypto interest account is the interest rate, the frequency it compounds, withdrawal fees, the security of the platform and the wallet in which your funds are stored and whether there is a minimum term it needs to be invested.

## Should you have a crypto interest account?

Anyone that holds, or is thinking of holding crypto assets should at-least consider a crypto interest account. It can be a simple, secure way to earn passive income on assets you have, or plan to have. Everybody's individual circumstances differ and if it suits you and your needs, it's worth considering the many interest accounts available today.

## Are my crypto assets secure in a interest account?

Each platform varies quite a lot in regards to how they secure digital assets. It's very important to understand how each platform differs as it can be risky to store your assets with a platform that doesn't offer sufficient digital asset security. 

Lending platforms that offer third party custody solutions such as Gemini Custody or BitGo are very good options. They have insurance on the assets they custody and institutional grade infrastructure to store them in a secure way. 

Good quality custody solutions offer cold storage which provide storage that is never connected to the Internet. 

You should always look for a platform that offers regulated, insured, cold storage custody to ensure your crypto assets are as secure as possible. So far, Nexo, BlockFi and Ledn offer that. 

## Is there a minimum time I need to invest?

Each provider offers different terms in regards to how long you need to invest. Some offer flexible terms which means you can withdraw your funds at any time. Some offer 1 month, 3 month and even 12 month options. Generally speaking, the longer you leave your assets in a fixed term contract the higher your interest rates. 

One thing to be aware of is that some providers will allow you to withdraw your funds on a flexible basis, however, they could have onerous withdraw fees, or even refuse to pay the interest you have accrued up to that point. It's important to read their terms and conditions to make sure you clearly understand. Or better still, you can ask us directly in the chat on the bottom right.

## What currencies do crypto interest accounts support?

You can find options in almost all currencies. The most popular are Bitcoin, Ethereum and stablecoins like USDC, DAI, TUSD, Tether and GUSD. Other currencies like Litecoin, XRP and others are slowly being supported as well. Generally, if there's a market to borrow in a certain currency, there's a market to lend.

## Is there a maximum amount that you can invest in a crypto interest account?

Usually, yes. Each provider differs in this regard, however, most have a cap of around 1 million USD. If you need a larger capacity than this, they will usually provide, however, you may need to provide additional identification and a lower interest rate.

## How long does it take to open a crypto interest account?

This usually depends on the amount you're investing and the country which you reside. If it's less than 10 BTC and you're from the UK, US, Australia, Singapore, or other low-risk country, you can be approved immediately. If you're looking to invest a larger amount and you're based somewhere that is considered higher risk, it could take longer and they may require more identification.

## How is the interest paid to me?

Depending on the provider, it's usually paid into the wallet of your interest account. You're usually paid in the same currency as the currency you’re earning interest on. For example, if you have one Bitcoin in a interest account, you’ll receive interest on that Bitcoin, which will be paid in Bitcoin in your interest account. The frequency of the interest payment will vary per provider, however, it’s usually monthly.


Like a traditional savings account, a crypto interest account accrues compounded interest over a given period of time.



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