Bitcoin investors (BTC) have been given some explosive gains recently and if you are among them, be careful: Your tax status could cause you to have to pay a lot in taxes on your profits. But for some people, there is a way to drastically lower taxes.

Here’s how you can determine if you qualify for a 0% tax bracket and the ability to claim up to $80,800 in Bitcoin earnings tax-free.

What you should know about Bitcoin and taxes

Bitcoin is viewed as property for tax purposes. That means Bitcoin is levied with the capital gains rates.

Once you sell your Bitcoin for a greater sum than whatever you paid for it, you have to fork over capital gains taxes. Let’s say you buy some Bitcoin and you pay $10,000 and later get rid of it for $30,000, this gives you a taxable profit of $20,000.

But there are two types of capital gains: long and short term. If you keep your Bitcoin for under a year, you will pay short-term gains that is almost like normal income. For that, you might be forced to pay as much as 37%. But if you want to avoid as much tax liability as possible, it is best to keep your Bitcoin for more than a year.

How to get tax-free profits

The IRS rewards those who keep their Bitcoin for more than a year with better rates. You could get long-term capital gains rates of 20%, 15% or even 0%, depending on your filing and income. This is how you can capitalize from your Bitcoin investment without paying any taxes.

If you are married and use a joint return with a total income of $60,000 and $20,000 in long-term Bitcoin gains. In that case, you would be able to pay ZERO taxes. For 2021, couples with taxable income up to $80,800 can get the 0% rates. Note: This example works because the $60,000 in wages and $20,000 from Bitcoin totals up to unver the $80,800 figure.

Author: Steven Sinclaire

 

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