Tax-Efficient Strategies for Selling Cryptocurrency #
The difference between selling crypto smart and selling it poorly can be 20% to 40% of your proceeds. Most people focus on when to sell based on price. They should be focusing on how to sell based on tax structure.
Long-term Capital Gains treatment is the foundation. Hold for more than a year, and your federal rate drops from ordinary income levels (up to 37%) to long-term Capital Gains rates (0%, 15%, or 20% depending on your income). That Spread is significant. If you bought Bitcoin three years ago and it’s up 400%, waiting past the one-year mark before selling saves you real money. This seems obvious, but plenty of people sell at eleven months because they’re watching price action instead of the calendar.
Tax-loss harvesting lets you offset gains with losses. If you have positions underwater, selling them creates realized losses that can offset your gains dollar-for-dollar. You can harvest up to $3,000 in net losses against ordinary income each year, and carry forward any excess indefinitely. The trick is doing this strategically throughout the year, not scrambling in December. Crypto’s Volatility means you often have both big winners and positions that are down. Use the losses to cushion the tax hit from the winners.
Selling through an LLC can create expense offsets if the entity has legitimate business expenses. Mining operations, trading activities, even educational or consulting work related to crypto can generate deductions that reduce your net taxable income. This only works if the structure is real and the expenses are legitimate. You can’t just form an LLC and pretend your personal laptop is a business expense. But if you’re actually running operations that generate costs, entity structure matters.
Charitable strategies work if you’re philanthropic anyway. Donating appreciated crypto directly to a qualified charity lets you deduct the fair market value without recognizing the capital gain. You get the full deduction, the charity gets the full value, and you never pay tax on the appreciation. Donor-advised funds make this even more flexible. You get the tax deduction immediately, but you can distribute the funds to specific charities over time. If you have a big gain year, bunching charitable contributions through a donor-advised fund can create substantial tax savings.
Borrowing instead of selling avoids the taxable event entirely. You collateralize your crypto, take a loan against it, use the cash for whatever you need. The loan isn’t taxable income. Your crypto keeps appreciating. If you hold until death, the cost basis steps up and your heirs inherit the position without the embedded tax liability. This is the “buy, borrow, die” strategy, and it works extremely well for assets you believe have long-term upside.
All of this requires planning before you sell. Once you’ve triggered the taxable event, your Options are limited. The structure needs to exist ahead of time. The loss harvesting needs to happen throughout the year. The entity setup and expense documentation need to be in place. The charitable vehicles need to be established.
This is where working with a fiduciary advisor who understands both digital assets and tax strategy makes a difference. A registered investment advisor operating under Fiduciary Duty has to prioritize your best interest, not push products. That distinction matters when you’re making decisions that have six or seven-figure tax implications.
Digital Wealth Partners provides wealth management and investment advisory services that include tax-efficient Portfolio management and strategic planning for Digital Asset positions. They handle Custody, coordinate with your tax advisors, and structure strategies that minimize your tax drag over time.
For families or business owners managing wealth across multiple entities and asset classes, Digital Ascension Group offers Family Office services. This means coordinating your crypto tax strategy with Estate Planning, multi-Generational Wealth transfer, business succession, and philanthropic goals. When your financial picture is complex enough that every decision touches multiple other areas, you need someone coordinating the whole structure.
Tax efficiency comes from structure, not from timing the market.
Contact Digital Ascension Group to learn how our Family Office services can coordinate your complete financial picture, including tax-optimized strategies for digital assets.
