How to Cash Out Crypto Without Paying Taxes | CoinLedger (2024)

FAQs

How to Cash Out Crypto Without Paying Taxes | CoinLedger? ›

There is no way to legally avoid taxes when cashing out cryptocurrency. However, strategies like tax-loss harvesting can help you reduce your tax bill legally.

If you disposed of or used Bitcoin by cashing it on an exchange, buying goods and services or trading it for another cryptocurrency, you will owe taxes if the realized value is greater than the price at which you acquired the crypto. You may have a capital gain that's taxable at either short-term or long-term rates.

One of the easiest ways to cash out your cryptocurrency or Bitcoin is to use a centralized exchange such as Coinbase. Coinbase has an easy-to-use “buy/sell” button and you can choose which cryptocurrency you want to sell and the amount.

US taxpayers must report any profits or losses from trading cryptocurrency and any income earned from activities like mining or staking on tax return forms, such as Form 1040 or 8949. Not reporting can result in fines and penalties as high as $100,000 or more severe consequences, including up to five years in prison.

Using Cryptocurrency Exchanges. One of the most common anonymous crypto cash out techniques is using cryptocurrency exchanges that prioritize privacy and security. These exchanges typically do not require users to provide personal information such as their name, address, or government-issued ID to use their services.

The IRS does not require you to report your crypto purchases on your tax return if you haven't sold or otherwise disposed of them.

However, there is no tax for simply owning cryptocurrency. What states have no crypto tax? Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income taxes (although New Hampshire and Tennessee tax interest and dividends while Washington taxes capital gains).

US taxpayers must report every crypto capital gain or loss and crypto earned as income, regardless of the amount, on their taxes. Whether it's a substantial gain or a single dollar in crypto, if you experienced a taxable event during the tax year, it's your responsibility to include it in your tax return.

Perhaps the most typical way of cashing out large amounts of Bitcoin is using a centralized exchange (CEX). These platforms provide extensive crypto trading tools and offer a few cash-out ways.

To convert a large sum of crypto into fiat: You can find an OTC desk to move it pretty quickly at current market rates, minus their fee. Or you can sell it more slowly on exchanges that deal in fiat currency — Binance, Coinbase, Gemini, Kraken, and a few others service the US, for example.

Can you cash out crypto for real money? ›

‍A: Bitcoin ATMs allow you to sell Bitcoin in exchange for cash. You need to verify your identity, typically through a government-issued ID, phone number, and a picture. You then send Bitcoin to the ATM's wallet and receive cash equivalent. The transaction process can take around 10-20 minutes.

There is no way to legally avoid taxes when cashing out cryptocurrency. However, strategies like tax-loss harvesting can help you reduce your tax bill legally.

What if I get audited? The IRS has started auditing taxpayers specifically to evaluate their crypto trades. This is nothing to worry about and you are expected to disclose any addresses or wallets you own or control and any exchange accounts you have.

Which crypto exchanges do not report to the IRS? Currently, centralized exchanges like KuCoin and decentralized exchanges like Uniswap do not collect KYC (Know Your Customer) information from users.

For most exchanges, such as Coinbase, you can expect withdrawal fees to be about 1% of the amount being withdrawn.

Yes, you can write off crypto losses on taxes even if you have no gains. If your total capital losses exceed your total capital gains, US taxpayers can deduct the difference as a loss on your tax return, up to $3,000 per year ($1,500 if married filing separately).

Giving and receiving a cryptocurrency gift is not subject to tax in most situations. If you give a cryptocurrency gift(s) worth more than $17,000 during the tax year, you may have to fill out a gift tax return. If you receive a cryptocurrency gift, you will likely pay taxes when you dispose of your gift in the future.

Short-term crypto gains on purchases held for less than a year are subject to the same tax rates you pay on all other income: 10% to 37% for the 2022-2023 tax filing season, depending on your federal income tax bracket.