Tax Free Crypto Currency Transactions?

TAX FREE CRYPTO CURRENCY TRANSACTIONS?

Can secrets of the super rich to eliminate their capital gain taxes now enable the use of cryptocurrencies and other digital assets to buy, sell, and charter yachts, jets and more with little - if any - capital gain taxes?

How To Successfully Mitigate The IRS Priority Of Capital Gain Tax On Crypto Transactions

Cryptocurrencies are a unique investment asset.

Considered a form of capital investment they are similar to stocks, bonds, real estate, business interests, etc. But unlike other capital investments, the IRS has a special interest in cryptocurrencies and digital assets of all kinds.

Just look on the tax form 1040 how the IRS makes it a unique priority to identify and separate cryptocurrencies and other digital assets from all other capital investments

The IRS classifies cryptocurrencies as property, not currency, so capital gains taxes apply when you divest or dispose of them. When you buy and sell, any profit or loss is treated as a short or long term capital gain or loss for tax purposes.

When you sell, trade, or use a cryptocurrency to buy something, you need to report any capital gains or losses on your tax return based on how long you held the asset.

Depending on many variables, combined federal and state capital gain tax rates for capital investment assets like cryptocurrencies can range from 0 to over 50%. Regardless of what the tax rate may be, with the right off sets,

While the future for cryptocurrencies and digital assets looks bright, 2025 / 2026 is scheduled to be the first tax year that crypto transactions will be subject to third-party reporting requirements — meaning information on them will be sent directly to the IRS. However, given all the pending and anticipated regulatory changes proposed by the Trump administration and the Department Of Government Efficiency (DOGE) include the IRS it's also possible this third party reporting date could be delayed or otherwise amended.

deductions, structures & strategies, the maximum effective tax rate on capital gains - the rate you actually pay-including on crypto-should be no more than about 2% - 4%.

Regardless, whether crypto transactions are conducted in a custodial account on a centralized crypto trading platform, or in private transactions, expect the IRS will know, take it seriously and plan accordingly.

“Ahlgren will serve time because he believed his cryptocurrency transactions were untraceable. This case demonstrates that no one is above the law. My team at IRS Criminal Investigation has the expertise and tools to track financial activity, whether it involves dollars, pesos, or cryptocurrency,” said Acting Special Agent in Charge Lucy Tan of IRS-Criminal Investigation (IRS-CI)’s Houston Field Office. “This case marks the first criminal tax evasion prosecution centered solely on cryptocurrency. As the prices for cryptocurrency are high, so is the temptation to not pay taxes on its sale. Avoid the temptation and avoid federal prison.”

Cryptocurrencies - Capital Gains Taxes - Short & Long Term

Cryptocurrencies like all capital investment assets are taxed on the gains realized upon the assets sale / divestiture. As for cryptocurrencies, that includes when spending, selling or trading the digital asset.

The taxing of capital gains is well established but can change with new tax laws and regulations. Currently, capital gains are taxed at different rates for short term and long term.

For those capital investment assets - like cryptocurrencies- owned for one year or less, the capital gain tax rate is the same as the ordinary income rate. The current maximum ordinary income tax rate is 37%.

The current long term capital gain tax rate is 0, 15% and 20% for those capital assets owned for more than one year.

For the 2025 tax year, individual filers won’t pay any capital gains tax if their total taxable income is $48,350 or less. The rate jumps to 15 percent on capital gains, if their income is $48,351 to $533,400. Above that income level, the rate climbs to 20 percent.

In addition, those capital gains may be subject to the net investment income tax (NIIT), an additional levy of 3.8 percent if the taxpayer’s income is above certain amounts. The income thresholds depend on the filer’s status (individual, married filing jointly, etc.) and are not adjusted for inflation.

So long term capital gains for using, selling, trading cryptocurrency could be as much as 23.8%

Not Just Cryptocurrencies, But Any Capital Investment Asset

But it's not just cryptocurrencies. All capital investment assets are taxed on the gains realized upon the assets sale / divestiture.

That includes but is not limited to real estate, stocks, bonds, business interests, cars, jewelry, art, collectibles, etc.

So capital gains for selling or trading ANY CAPITAL INVESTMENT ASSET could be as much as 23.8%

It makes no matter if the capital gain is $100,000 from a cryptocurrency transaction or $100,000,000 from a stock, real estate or business sale.

So far, we've only discussed the federal tax obligations. But many states also tax capital gains. Depending on the state and the specific transaction and taxpayer - combined capital gains can exceed 50%.

Obviously, The Preferred Solution To Capital Gain Tax is O%

Structure your transaction to avoid any capital tax liability. This is especially true for cryptocurrency transactions.

That would most easily be accomplished with a loan using the cryptocurrency as collateral. Loan proceeds are not recognized as income and are thus not taxed. That allows you to use crypto tax free with an effective 0% tax rate.

Rather than selling your crypto and incurring a taxable capital gain or loss, a crypto loan could provide access to another currency digital or fiat such as US dollars without any tax liability.

However due to many factors including crypto's volatility, it's often difficult to find a crypto loan with satisfactory terms.

That's why we have created a special crypto loan program for YES clients.

Optimal Terms & Conditions include but are not limited to:

- Up to 100% Loan To Value

- Interest only- fixed or floating

- Lowest rates allowed by AFR

- Terms of 5, 10, up to 30 years

- Plus Substantial Tax Incentives

But for situations when a loan may not be the optimal strategy, are there other strategies to mitigate capital gain taxes - including any possible crypto capital gains?

YES There's Another Solution To Crypto Capital Gain Tax

The tax liability for spending or divesting cryptocurrencies is well established and irrefutable. Like all capital investment assets, digital assets are taxed on the gains realized upon the assets sale / divestiture - as either short term or long term capital gain rates.

And capital gain tax rates can be surprisingly high. Capital gain tax rates can range from 0 - to about 50% depending on the amount and including state taxes. For example, the combined federal and state short term capital gains tax rate in California can exceed 54%.

Fortunately, YES there are solutions to mitigate / offset capital gain taxes. Unfortunately, they're often overlooked or fall through the cracks.

So while capital gain rates can range from 0 to over 50%, with the right off sets, deductions, structures & strategies, the maximum effective tax rate on capital gains - including crypto- should be only about 2% to 4%.

For example, consider a hypothetical using a third party capital gain tax calculator. A single tax payer living in Los Angeles, CA with a $999,000 short term capital gain where the holding period was less than a year would pay the ordinary income tax rates for both federal and state taxes.

In such a scenario, this tax payer would owe taxes of $540,000 with a capital gain tax rate of more than 54%.

50% Tax Rate

Now compare that hypothetical to our white paper also using a third party tax calculator - the IRS.

We demonstrate that with the proper tax planning, tax payers with ordinary income up to at least $25,000,000 could only pay about 4.5% in federal taxes and for $1,000,000 only about $25,000 or a tax rate of about 2.5%.

Clearly preferable than the hypothetical tax payer with $1,000,000 short term capital gain taxed at the ordinary income rates that would owe taxes of $540,000 or more than 54%.

But are similar savings also available for capital gains? YES.

Reduce Cryptocurrencies Short Term Capital Gain Tax

Now compare another hypothetical using a third party tax calculator for short term capital gain tax.

To keep it simple and to focus on the single issue of just the federal tax on short term capital gain - be it cryptocurrencies or any other capital gain asset- we use a singly head of household with the only income being $1,000,000 of short term capital gain.

Its fairly straight forward: $1,000,000 of short term investment income as the only income, with no off setting deductions other than the standard deduction leaves federal taxable income of $978,100 at 37% is $348,792.

Compare another scenario for the same hypothetical EXCEPT using available deductions to offset almost all of the taxable capital gain and resulting tax.

Just as in the base line status quo scenario: $1,000,000 of short term investment income as the only income.

Except this scenario exploits available deductions totaling $925,000.

That leaves a taxable income of $75,000, a tax rate of 22%, and total federal tax due of only $40,259 and an effective tax rate of about 4%.

Reduce Cryptocurrencies Long Term Capital Gain Tax

This hypothetical is for long term capital gain tax.

Again, to keep it simple and to focus on the single issue of just the federal tax on long term capital gain - be it cryptocurrencies or any other capital gain asset- we use a singly head of household with the only income being $1,000,000 of long term capital gain.

Its fairly straight forward: $1,000,000 of long term investment income as the only income, with no off setting deductions other than the standard deduction leaves federal taxable income of $978,100 but only $189,002 due to the long term taxable rate of 20% - even though the ordinary income rate is 37%.

Finally, here's the hypothetical for long term capital gain tax EXCEPT with the applicable deductions the tax rate is 3.2%.

So the key to reducing capital gain taxes for digital assets, cryptocurrencies or any other capital investment asset is to find and apply any available deductions that may be overlooked or have fallen through the cracks.