How to legally lower your crypto tax bill

You don't have to overpay on your crypto, and you don't have to hide anything to keep the bill down. Those are two different roads. One uses the same rules the tax code hands every other property owner. The other is tax evasion, and with the new broker reporting form landing in early 2026, it's a worse bet than it has ever been. This piece is about the first road: what actually lowers the number, and when each move earns its trouble.

First, the part that isn't optional

The IRS treats crypto as property. Sell it, swap one token for another, or spend it, and you've made a disposal, which triggers a capital gain or loss. Getting paid in crypto, or earning it through staking or rewards, counts as ordinary income, taxed at its dollar value the day it lands in your wallet. None of the legal moves below change those facts. They change how much of the gain you keep.

Your Form 1040 asks a plain yes-or-no question about digital assets near the top. Answer it honestly. Starting with 2025 activity, custodial exchanges send both you and the IRS a Form 1099-DA reporting your gross proceeds, with cost-basis reporting phasing in for assets bought in 2026 and later. The separate rule that would have forced DeFi platforms to report was repealed in 2025, so for now this covers custodial brokers only. Either way, the agency increasingly sees your sales whether or not you report them. Legal planning works. Silence doesn't.

Hold for more than a year

This is the biggest lever, and it costs nothing but patience. Sell a coin you've held for a year or less and the profit gets taxed like your paycheck, at ordinary rates that climb to 37%. Cross the one-year mark and that same profit gets the long-term rate: 0%, 15%, or 20%, depending on your income.

Say you're up $8,000 on Ethereum you bought eleven months ago. Sell now, and if you're in the 24% bracket that's roughly $1,920 in federal tax. Wait five weeks past the one-year mark and the same $8,000 might get taxed at 15%, about $1,200. Same gain, $700 saved, for doing nothing. When you're close to the line, check the exact purchase date before you hit sell.

Sell your losers on purpose

A loss on paper does nothing for you. A realized loss is a tool. Sell a position that's underwater and the loss cancels out gains dollar for dollar. If your losses run past your gains, you can deduct up to $3,000 against ordinary income this year, and whatever's left carries forward with no expiration.

Here's the part that's specific to crypto. The wash-sale rule, which stops stock investors from selling at a loss and rebuying the same thing within 30 days, doesn't currently apply to digital assets. So in principle you can sell a token to book the loss and buy it right back to keep your position. Proposed legislation has targeted that gap more than once, so treat it as a rule that could close, not a permanent feature. If you're leaning on it hard, confirm it still holds for the tax year you're in.

Which coins you sell matters too. Bought Bitcoin in three batches at different prices? You can often tell your exchange or software to sell specific lots, the expensive ones first, instead of defaulting to the oldest. That's specific identification, and it shrinks the gain on paper. It only works if you pick the lots at the time of the sale and keep records, so set it up before you trade, not at filing time.

Give it away instead of selling it

Two moves let appreciated crypto skip the capital-gains tax entirely.

• Gifting. You can hand crypto to another person up to the annual gift exclusion without gift-tax paperwork. You owe no tax on the transfer, though the recipient inherits your original cost basis and owes the gain if they later sell. Pass appreciated coins to a family member in a lower bracket and the eventual sale gets taxed less, sometimes not at all.
• Donating to charity. Give crypto you've held more than a year to a qualified nonprofit and you generally deduct its full market value while paying zero capital-gains tax on the appreciation. Sell first and donate the cash, and you eat the tax on the way out. Donate the coin directly and you skip it.

A large donation usually needs a qualified appraisal, so set this one up with a pro rather than improvise in late December.

Time the sale, and mind your state

Your tax rate isn't fixed. It tracks your income, which gives you room to plan around the years you control. A stretch between jobs, or a year in grad school: in a low-income year, long-term gains can land in the 0% bracket. For 2025 that 0% band reaches taxable income of $48,350 for a single filer and $96,700 for a married couple filing jointly. Drop under those lines and selling appreciated crypto held over a year can cost nothing in federal tax.

Two more levers sit further out. Some investors hold crypto inside a self-directed IRA, where trades don't trigger tax year to year, though these accounts carry custody rules and fees worth vetting carefully. And your state bill can dwarf every trick above. States set their own rates, and a handful of them, Texas, Florida, and Washington among them, charge no personal income tax on this kind of gain at all. Nobody should move for taxes alone. But if you were already weighing a move, the timing of a big sale against when you actually change residency can be worth real money. That one has strict rules about when you count as a resident, so get it right before you sell.

None of this needs a loophole or a gray area. Pick the lots, hold the winners longer, book the losses, give appreciated coins instead of cash, and sell in the years and the state where the rate is lowest. Run the numbers on your own trades before year-end, while you still have time to act on them.