Crypto tax avoidance – is it a good idea?

No one likes it when the tax man comes along to take his share of your earnings. When it comes to digital currency, it’s no different.

But crypto tax avoidance is never a good idea and you should speak to a Crypto Tax Accountant.

You have to pay taxes on any crypto profit you make in the UK, just like any other income. If you don’t pay your crypto taxes correctly, you could end up in trouble with HMRC. But there’s good news – there are some legal ways to reduce your taxes when trading, earning and mining crypto.

Do I Have To Pay Taxes On My Crypto?

In short, yes. Your crypto profits could be subject to capital gains tax and income tax.

You pay 10% or 20% on any capital gains you make from crypto that fall over the £12,300 tax-free allowance. You then pay 20% – 45% in tax on any profits that fall above this allowance. The specific amount you pay depends on a few factors, including:

• Type of transaction
• Applicable tax
• Your income band

Income tax applies if you are paid in crypto but also includes mining tokens, staking rewards, and most airdrops. Calculating how much you owe in income tax can be a long process, but it is fairly straightforward, especially if you have earned a tiny amount of normal income.

Can HMRC Catch You For Not Paying Crypto Tax

Yes, getting into trouble with HMRC for not declaring taxes on your crypto income is a real risk. HMRC is putting more effort into crypto tax enforcement, too, using a range of tools and techniques to spot those who might not be meeting their tax duties.

Can You Keep Your Crypto Transactions Tax-Free?

In some cases, you can keep your crypto transactions tax-free. There are even legal ways to make sure you aren’t paying unnecessary taxes on your crypto. Let’s take a look at some different scenarios:

Carry Forward of Losses

If you’ve sold crypto at a loss, you can use these losses to offset future capital gains. Known as carrying forward losses, this technique allows you to lessen your tax burden in more profitable years. This makes sure that every cloud really has a silver lining.

Think About The Timing of Sales

You can impact your tax liability by timing the sale of your cryptocurrency. Selling assets in a year when you have a lower income could place you in a lower tax bracket, reducing the amount of tax you owe on your gains. But remember, this does require careful planning and a stronger understanding of your overall financial picture.

Gifting Cryptocurrency

Gifting cryptocurrency can be a way to reduce your taxable estate while sharing the wealth with friends and family. In some regions, gifting crypto can be tax-free up to a certain amount annually. This benefits the person you’re gifting and allows you to decrease your taxable holdings.

Donating Cryptocurrency

Giving cryptocurrency to an official charity or non-profit can help you save on taxes. You can reduce the amount of money you’re taxed on by the value of what you donate, but there are some rules and limits to how this works.

Consider Your Income Bracket

Understanding which tax bracket you fall into is a really important part of planning your crypto transactions. If certain sales could push you into a higher tax bracket, it might be worth spreading these transactions over multiple tax years to remain in a lower bracket and reduce your overall tax rate.

Keeping Accurate Records

No matter which path you choose, the cornerstone of any solid tax strategy is keeping a set of comprehensive records. Track every crypto transaction, noting down the dates, how much you traded and at what prices.

Having these records is your strongest protection. Not only will it simplify your tax filing process, but it will also help you to leverage the ways you can reduce your taxes.

Stay on the right side of the law with Crypto Tax Degens

Feeling a bit lost? It’s understandable; this stuff can get pretty tricky. But don’t worry, we’re here to help you get the most out of your crypto dealings. By joining the crypto tax degens, you’ll get special access to expert advice on crypto taxes.

If you want to move through the crypto space confidently, stay compliant, and be well-informed, think about joining our community. You’ll get exclusive insights from top crypto tax experts like Andy Wood. Sign up with us today to make sure your crypto journey is both informed and on the right side of the law.