How to minimize cryptocurrency taxes in 2026: 6 strategies to legally avoid crypto taxes
Nov 17, 2025・6 min read
There’s no denying April 15 is a stressful day for many in the United States – it’s the deadline for most taxpayers to file their federal income tax returns.
The threat of an audit keeps people on edge, and the rise of digital assets adds another layer of complexity due to crypto’s decentralized nature and often unclear regulations.
Crypto taxes can be a headache, especially for active traders using multiple platforms and DeFi apps. Tax software like CoinTracker helps simplify tracking, but you can also use strategic accounting methods to help reduce your tax burden.
In this guide, we’ll explain how to minimize capital gains tax on cryptocurrency and explore common strategies for lowering the taxes you owe from crypto gains, including tax harvesting.
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How to keep crypto taxes to a minimum
Here are six methods investors often use to decrease what they owe on their tax bill:
1. Harvest losses
If you hold underperforming crypto assets, you might consider strategically selling them at a loss to offset realized gains – a technique known as tax-loss harvesting. This method helps reduce capital gains by using capital losses as deductions. This even applies across asset classes, for example, if you have gains from trading stocks, losses from crypto can offset those gains (and vice versa).
If your losses exceed your total gains, you may be able to reduce your ordinary income by up to $3,000 for the year. Any remaining losses can be carried forward to offset gains in future years.
2. Monitor your capital gains, losses, and taxable income
To spot good tax loss harvesting opportunities and minimize tax liability, you must monitor your capital gains, losses, and taxable income. Doing so also helps you decide when to take profits or hold your investments. It also provides documentation to support your tax return.
Timing the crypto market isn’t just about buying low and selling high. It also involves considering your annual income to assess your potential capital gains tax rates. Ideally, traders sell their profitable positions in years when their income is lower, which may place them in a lower tax bracket. This can be particularly effective during life changes like switching jobs, returning to school, taking a sabbatical, or any situation where your annual income temporarily drops – since a lower income may reduce your overall tax liability.
That said, you don’t need to avoid selling an asset when your income level is high – it’s simply one factor to consider, as it could affect which tax bracket you fall into and how much you owe.
3. Leverage crypto as collateral for loans
When you sell cryptocurrency for fiat currency like USD and make a profit, the IRS considers it a taxable event that’s subject to capital gains taxes. The amount you owe depends on your annual income and how long you held the asset. To avoid a taxable disposition, you can use your crypto as collateral for a loan rather than selling it. When you take out a loan using your cryptocurrency as collateral, you’re generally not disposing of the cryptocurrency, meaning you generally don’t trigger a taxable event.
Several DeFi protocols offer this option, but before taking out a loan for your appreciated crypto, make sure to understand the terms and conditions and flow of funds. Some lending products may actually lead to taxable exchanges, where users receive a token in exchange for your original crypto. Entering into such a “loan” could trigger capital gains taxes even if the user thought the product was a lending application.
Once you repay the loan, you recover your collateral with no tax implications.
Be mindful of your collateral and make sure to maintain a healthy collateral to loan ratio; a liquidation event would result in a taxable disposition of your collateral.
4. Contribute to charitable causes with cryptocurrency
As more charitable organizations accept crypto donations, more investors are giving to causes they care about, and benefiting from favorable tax treatment. Qualifying donations are not subject to capital gains tax and, in some cases, may be deductible from your annual taxable income.
Donating crypto is considered a non-taxable disposal – one of the few instances where you can dispose of crypto without triggering taxes. At tax time, you can claim a deduction based on the asset’s fair market value (FMV) at the time of donation for assets held for more than a year, while assets held a year or less are limited to the lower of cost basis or FMV.
5. Utilize a cryptocurrency-based retirement account
The growing popularity of crypto as an asset class has led to the creation of crypto IRAs – retirement accounts designed for long-term investments in cryptocurrency.
Like traditional IRAs, crypto IRAs let you contribute annually and enjoy tax benefits while earning income. The main difference is that crypto IRAs focus on digital currencies such as Bitcoin (BTC), Ethereum (ETH), and Solana (SOL), offering a modern alternative to the stocks, bonds, and mutual funds commonly held in conventional IRAs.
However, there are some limitations to consider. IRA contributions are capped at $7,000 annually for individuals under 50 and $8,000 for those 50 and older (as of 2025). Crypto IRAs follow the same rules as standard IRAs regarding contributions and early withdrawals.
Early withdrawals made before age 59½ generally incur a 10% penalty plus standard income tax, unless exceptions apply, such as for qualified medical expenses, purchasing a first home, or paying for higher education.
6. Move
Many consider moving to a different country to reduce their crypto tax burden. But for U.S. citizens, that alone isn’t enough – they’re still subject to U.S. tax laws even when they relocate abroad unless they formally renounce their U.S. citizenship. However, Puerto Rico is a rare exception. As a U.S. territory, it offers unique tax advantages that aren’t available in other jurisdictions. Still, in most cases, U.S. citizens must pay taxes on their worldwide income, regardless of where they live.
While moving to another country isn’t feasible for most, relocating within the U.S. can still have a significant impact on your tax burden. For example, moving from high-tax states like California (up to 13.3%) or New York (up to 10.9%, plus New York City income tax ranging from 3.08% to 3.88%) to no-income-tax states like Alaska, Florida, Nevada, Texas, or Wyoming can reduce your overall tax liability.
How specific identification method can reduce your crypto taxes
According to IRS crypto tax guidance (FAQ A39), taxpayers can use specific identification to calculate the cost basis of each unit of crypto asset they dispose of. Specific ID means that each time you dispose of a crypto asset, you choose exactly which unit of cryptocurrency you’re selling at the time of the transaction. The most common approach under specific identification is highest-in-first-out (HIFO), which will always minimize taxable gains since the highest-cost unit is the first sold.
For example, let’s say you purchased 1 BTC for $3,000 in February 2018 and another 1 BTC at $5,000 in March 2018. In June 2020, you sell 1 BTC for $10,000.
Using specific identification and HIFO, you could choose to dispose of the BTC purchased on March, resulting in a $5,000 capital gain. Selling the BTC purchased in February would result in a $7,000 capital gain – a $2,000 difference in your taxable amount.
To use this strategy, you need accurate records to show the IRS which units were sold and at what price. Transaction tracking tools, like those that CoinTracker offers, help simplify the process.
Avoid paying extra in crypto taxes with CoinTracker
From tax loss harvesting to specific identification, correctly reporting crypto taxes can be challenging, but you don’t have to go it alone.
With over 500 integrations on exchanges and wallets – plus 23,000+ smart contracts in DeFi – CoinTracker offers the most comprehensive crypto tax software suite. With CoinTracker’s Portfolio Tracker, you can connect APIs from your exchange accounts and crypto wallet addresses to create a comprehensive, real-time view of your transaction history.
CoinTracker automatically compiles this data to help you track gains, losses, and tax-loss harvesting opportunities. When it’s time to file, you can import your transaction history into IRS-compliant forms and sync with popular platforms like TurboTax and H&R Block, streamlining your tax reporting.
Start for free and discover why over 2 million cryptocurrency traders trust CoinTracker to optimize their taxes.
Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.