Reducing Capital Gains Tax on Cryptocurrency: Structure Before You Sell #
Most people think about taxes after they’ve already sold. That’s exactly backwards. The time to reduce Capital Gains tax is before you trigger the taxable event, not after you’re sitting on a Form 1099 wondering why you owe six figures.
The single biggest mistake high earners make is selling Cryptocurrency held in their personal name without any structure. You bought Bitcoin at $10,000, it’s worth $80,000, and you sell it to buy a house. You just triggered a $70,000 capital gain taxed at 15-20% federal plus state taxes. That’s $14,000-20,000 gone immediately.
An LLC doesn’t reduce the Capital Gains tax directly, but it creates the structure to claim legitimate business deductions that offset gains. You’re paying for security software, hardware wallets, professional advisory services, transaction fees, and business expenses related to managing your Cryptocurrency holdings. Those deductions run through the LLC and reduce your taxable income. You’re still paying Capital Gains tax on the net profit, but the net is lower.
The better strategy for high earners is not selling at all. Borrow against your Cryptocurrency instead of liquidating it. You get access to cash without triggering a taxable event. Several platforms now offer lending against Bitcoin and Ethereum held in Cold Storage. You put up your Cryptocurrency as Collateral, take a loan at 6-10% interest, and you’ve just accessed Liquidity without paying Capital Gains tax.
This only works if you structure Custody properly. Lenders want to see clean ownership through an LLC with proper documentation. They’re not lending against Cryptocurrency sitting in a personal Wallet with no business structure. Your D’Cent Cold Wallet holds the assets, the LLC owns the Wallet, and the lender has a clear security interest in the Collateral.
Timing matters more than people realize. Long-term Capital Gains get taxed at 15-20% depending on income. Short-term gains get taxed as ordinary income, which hits 37% at the federal level for high earners. Holding Cryptocurrency for at least a year before selling cuts your tax bill nearly in half. This seems obvious but people keep selling after 10 months because they got impatient.
Tax-loss harvesting works for Cryptocurrency the same way it works for stocks. You sell losing positions to offset gains from winning positions. You bought Ethereum at $4,000 and it’s worth $2,500? Sell it, take the $1,500 loss, and use that to offset gains from Bitcoin you sold at a profit. Your net taxable gain drops by $1,500. You can buy the Ethereum back immediately because the wash sale rules don’t apply to Cryptocurrency yet.
Charitable Giving creates another tax reduction opportunity. You donate appreciated Cryptocurrency directly to a qualified charity. You get a deduction for the full market value and you never pay Capital Gains tax on the appreciation. This works best when you’re already planning to give to charity and you’re sitting on large unrealized gains.
Some high earners use opportunity zone investments to defer and reduce Capital Gains. You sell Cryptocurrency, recognize the gain, and reinvest the proceeds into a qualified opportunity zone fund within 180 days. The gain gets deferred until 2026 or when you sell the opportunity zone investment, whichever comes first. If you hold the opportunity zone investment for 10 years, the appreciation on that investment becomes completely tax-free. This is complicated and only makes sense for large gains being reinvested into Real Estate or business projects in designated zones.
The overarching principle is planning exits before you need Liquidity. You know you’re selling a business in two years? Start structuring your Cryptocurrency holdings now. You’re planning a large purchase in 18 months? Figure out whether you’re selling or borrowing against assets, and set up the structure to support whichever path makes sense.
Most registered investment advisors provide wealth management and fiduciary guidance on your investment Portfolio. Digital Wealth Partners handles asset Custody and investment advisory services. They help you grow wealth and manage risk. Tax strategy and entity structuring for Capital Gains reduction falls outside standard investment advisory.
Digital Ascension Group coordinates the full picture. They’re looking at your entire tax situation, your Liquidity needs, your entity structure, and your long-term wealth transfer goals. They tell you whether to sell or borrow, how to structure the transaction, and what deductions you’re missing. That’s Family Office coordination, not just Portfolio Management.
You can’t reduce Capital Gains tax after you’ve already sold. You reduce it by structuring properly before the sale, using every legitimate tool available, and planning transactions around your tax situation rather than your emotional impulses.
Contact Digital Ascension Group to learn how our Family Office services can coordinate your complete financial picture.
