8 Crypto Tax Loopholes in 2026 (Save Thousands)

In this guide, we’ll outline eight simple strategies that can potentially help you legally save thousands of dollars on your tax bill! 

#1: Hold your cryptocurrency 

The easiest way to avoid taxes on cryptocurrency is simply to hold.

Remember, there’s no tax for holding cryptocurrency. You only pay taxes when you dispose of it or earn crypto income.

#2: Harvest your crypto losses 

Losses from cryptocurrencies and other assets can be used to offset an unlimited amount of capital gains and up to $3,000 of ordinary income for the year. Any additional losses can be rolled forward into future tax years. 

Because of this, many investors choose to intentionally sell their cryptocurrency at a loss for tax benefits, a strategy known as tax-loss harvesting!   

While tax-loss harvesting is not unique to cryptocurrency, crypto has some advantages over other asset classes. The wash sale rule states that you can’t claim capital losses on securities, such as stocks, if you buy them back within 30 days of a sale. 

Currently, cryptocurrency is not considered a security by the IRS. As a result, most tax professionals agree that the wash sale rule does not currently apply to crypto. That means that you can sell your cryptocurrency for a loss, buy your crypto back shortly after, and claim a loss on your tax return! 

#3: Contribute to retirement accounts 

Crypto Individual retirement accounts (IRAs) allow you to invest in cryptocurrency on a tax-free or tax-deferred basis! It’s a great option for investors who are looking to minimize taxes while holding crypto for the long-term. 

While most IRA providers don’t allow you to hold cryptocurrencies directly, self-directed IRA providers allow you to directly invest in assets like Bitcoin and Ethereum. Most IRAs do allow you to invest in cryptocurrency ETFs. 

It's important to note that there is a penalty for withdrawing assets from your IRA early. This option is best suited for investors planning to hold cryptocurrencies for decades to come.

#4: Dispose of crypto after more than 12 months 

The American tax code is set up to encourage long-term investment. That means that if you hold cryptocurrency and other assets for longer than 12 months, the tax that you’ll pay on profits is significantly reduced! 

If you’re close to the 12 month mark, you may want to consider waiting a bit longer to sell your crypto to minimize your tax bill.

#5: Donate crypto to charity 

Donating cryptocurrency is one of the rare occasions when the IRS allows you to ‘double dip’ on tax benefits. 

Donating crypto can be treated as a deduction on your tax return and potentially reduce your tax bill! 

In addition, donating your cryptocurrency to charity is not considered a taxable disposal. That means you won’t be required to pay capital gains tax even if the value of your crypto increased significantly since you originally received it!

#6: Cryptocurrency gifts 

Gifting cryptocurrency is not subject to tax in most circumstances. 

If you give less than $19,000 worth of cryptocurrency gifts to a single individual during the tax year, you don’t need to report your gifts to the IRS. 

While you are required to fill out a gift tax return if you give more than $19,000 in cryptocurrency gifts to a single person during the tax year, this does not come with a tax liability in most cases. Filling out a gift tax return is primarily for informational purposes.

You’ll only pay tax on giving gifts if you exceed the lifetime gift exemption threshold (currently at $13.99 million for the 2025 tax year).

#7: Cryptocurrency loans 

While disposing of your cryptocurrency is taxable, taking out a loan is generally considered non-taxable. 

As a result, many high net-worth crypto investors choose to take out a loan using cryptocurrency as collateral. This can be an easy way to get access to fiat currency without creating a taxable event.

If you choose this route, it’s important to find a trustworthy crypto loan provider. In the past, popular crypto loan platforms like BlockFi and Celsius have gone bankrupt. 

#8: Business expenses

If you’re considered a business by the IRS, you can deduct relevant expenses such as trading fees, electricity costs, and staking/mining equipment. 

These deductions are not available for individual taxpayers. 

Remember, you do not need to have a registered business license to be considered a ‘business’ by the IRS. The IRS uses criteria such as the following to determine whether you fall into this category: 

• The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records.
•  The taxpayer puts time and effort into the activity to show they intend to make it profitable.
• The taxpayer depends on income from the activity for their livelihood.

If you’re not sure whether your cryptocurrency activity rises to the level of a ‘business’, reach out to your tax professional. 

Commonly-suggested tax loopholes that don't work

Now that we’ve walked through our list, let’s walk through a few commonly-suggested ‘loopholes’ on crypto forums that you should avoid. 

Tax myth #1: You can avoid tax if you use DeFi

Some investors believe that there’s no need to report taxable income from decentralized applications. 

At this time, DeFi protocols do not report to the IRS. However, if you ever cash out your funds, you’ll need a centralized exchange. Starting in 2026, all centralized exchanges will be required to report capital gains and losses to the IRS via Form 1099-DA. This means that if you cash out in the future, your ‘anonymous’ transactions can be identified. 

In addition, the IRS has worked with contractors like Chainalysis to analyze ‘anonymous’ blockchain transactions and crack down on tax fraud. 

It’s best to be proactive and report all of your taxable income to avoid future issues with the IRS. 

Tax myth #2: No need to pay tax if you reinvest

Many investors believe that there’s no need to pay tax if you reinvest profits into cryptocurrency. 

Remember, you are required to recognize capital gains/losses whenever you ‘dispose’ of cryptocurrency (selling it, disposing of it, spending it, etc.) This is true regardless of what you do with the profits afterwards. 

Tax myth #3: Small transactions don't need to be reported

Some investors don’t report small transactions to the IRS. However, it’s important to remember that you are required to report all of your taxable income to the IRS, regardless of a total amount. 

While it’s unlikely that a small transaction will trigger an audit, even minor differences between a Form 1099-DA and your tax return could lead to the IRS sending you an automated warning letter about your unpaid tax bill. 

Will Donald Trump eliminate tax on crypto?

In 2024, President Trump's son Eric Trump floated the idea of zero tax on US-based cryptocurrencies. It's important to note that this was a proposal, and that no relevant legislation has been introduced to Congress. It's important to note that at this time, cryptocurrency is still subject to capital gains and income tax.

How does crypto tax work? 

Cryptocurrency, like other assets, is subject to tax. In the United States and most other countries, you’ll most likely pay capital gains tax and income tax on your cryptocurrency profits. 

Capital gains tax: When you dispose of crypto, you’ll incur a capital gain or loss. Cryptocurrency disposals include selling your crypto, trading it for another crypto, or using crypto to make a purchase! 

Income tax: When you earn cryptocurrency, you’ll recognize ordinary income tax. Examples of income include cryptocurrency mining and staking! 

What tax loopholes can I use for NFTs? 

Many of the strategies listed in this article can also be applied to reduce NFT taxes. For more NFT-specific strategies, check out our guide to NFT tax loopholes. 

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