How to Avoid Paying Taxes on Crypto? 5 Proven Strategies
Figuring out how to avoid paying taxes on crypto is one of the biggest concerns for investors and traders around the world. From casual holders to active DeFi users, many are surprised by just how many transactions count as taxable events—selling, swapping, staking, even spending your crypto.
And the numbers are only growing. Global tax agencies are tightening crypto reporting rules, with tools like Chainalysis helping them trace transactions across blockchains.
The good news? You don’t need to break the rules or go offshore to lower your tax bill. This guide breaks down 5 legal, practical strategies to help you reduce or completely avoid crypto taxes—no matter where you live.
Basics of Crypto Taxes
Before you look at how to avoid paying taxes on crypto, you need to understand when taxes actually kick in.
Most countries treat crypto as property, not currency. That means profits from selling, trading, or earning crypto are taxed, just like gains from stocks.
Here are the most common taxable events:
– Selling crypto for fiat (like BTC to USD)
– Swapping one coin for another (ETH to SOL)
– Using crypto to buy stuff—even a cup of coffee
– Earning crypto from staking, mining, airdrops, or freelance work
These trigger either capital gains or income tax, depending on the event.
Now, timing matters.
In the U.S., short-term gains (under 12 months) are taxed like regular income, up to 37%. Long-term gains (over 12 months) get a better rate: 0% to 20%. Read the complete US crypto tax guide here.
Germany takes it even further. If you hold crypto for over a year, you pay zero capital gains tax. Sell it before a year? It’s taxed like regular income. Read the complete Germany crypto tax guide here.
So if you’re asking how to not pay tax on crypto, your holding period (and your country) make a big difference.
How to Avoid Paying Taxes on Crypto (Legally)
Strategy 1: HODL – Delay Tax With Long-Term Holding
Want to avoid crypto taxes legally? The easiest way is to do… nothing. Literally.
When you HODL—hold your crypto without selling—you don’t trigger a taxable event. No sale means no capital gains to report.
In the U.S., this move pays off. Hold for over 12 months, and your gains qualify for long-term capital gains tax:
- 0% if you earn under $47,025
- 15% or 20% if you earn more
Compare that to short-term gains (under a year), which get taxed like regular income—up to 37%.
As we mentioned before, Germany goes a step further. If you hold crypto for more than a year, your gains are 100% tax-free. No paperwork. No tax. Nothing.
This strategy (along with others) is great for long-term investors, especially if you’re in a low-income bracket or live in a crypto-friendly country. It’s less ideal for active traders or those who need to cash out quickly.
Pro tip: Tools like Bitcoin.Tax can help you track holding periods so you don’t sell too soon and miss out on tax-free crypto gains.
Strategy 2: How to Cash Out Crypto Without Paying Taxes (Legally)
Need cash but don’t want to pay capital gains tax on crypto? Don’t sell—borrow.
Crypto loans let you cash out without creating a taxable event. Since you’re not selling your coins, there’s no gain to report. And loans aren’t considered income. This makes it one of the cleanest crypto tax loopholes available.
If you’re wondering how to cash out crypto without paying taxes, this is it.
Example:
- You bought 1 BTC at $10,000. Now it’s worth $60,000.
- Sell it, and you owe tax on the $50,000 gain.
- Borrow $30,000 against it? No tax and you still own the BTC.
Platforms like Nexo, Coinbase Borrow, and Unchained Capital offer crypto-backed loans in fiat or stablecoins, with your crypto held as collateral. It’s perfect for long-term holders who want liquidity but don’t want to trigger crypto-taxable events.
But it’s not risk-free.
- If the market dips, you might get a margin call.
- Miss a payment, and your collateral is gone.
- Plus, interest eats into your gains.
Still, for smart HODLers, borrowing against crypto is a legal, practical answer to how to avoid paying taxes on crypto.
Strategy 3: Crypto Tax-Loss Harvesting
Made gains this year? Offset them by selling your losing coins. That’s crypto tax-loss harvesting—a popular way to reduce your tax bill legally.
Here’s how it works:
Say you made $8,000 on BTC but lost $5,000 on an old altcoin. If you sell the altcoin before year-end, you only owe tax on $3,000 in gains. In the U.S., you can also deduct up to $3,000 in net losses from your income and carry forward any extra.
What makes this a powerful crypto tax loophole?
The crypto wash sale rule—which blocks stock traders from claiming losses if they rebuy too soon—doesn’t currently apply to crypto in the U.S. So you can sell at a loss, buy back the same coin immediately, and still get the deduction.
It’s ideal for investors with both winners and losers in their portfolio. Not as useful if you’re all-in on one coin or haven’t realized any gains.
But be careful: Most other countries, like Canada and Australia, do apply wash sale rules to crypto. And U.S. laws might change soon.
Keep records, stay updated on crypto IRS rules, and use this while it lasts.
Strategy 4: Gifting or Donating Crypto
One of the most overlooked crypto tax loopholes? Giving it away.
Gifting crypto to family or friends can help you avoid capital gains tax—without triggering a taxable event. In the U.S., you can gift up to $18,000 per person per year (2024) without reporting it.
No tax is due when you give, and the recipient takes on your original cost basis. If they’re in a lower income bracket, they could pay less tax when they sell.
In Germany, gifting crypto can also be tax-free, up to €20,000 if the recipient isn’t family, and higher for close relatives. Go above the limit, though, and it may trigger a gift tax. So knowing local thresholds is key.
Let’s say your ETH has big gains. Instead of selling it and paying tax, you gift it to your college-age sibling. They sell it later—and pay much less (or nothing at all) in tax.
Read our crypto gift tax guide to see which other countries let you gift crypto tax-free.
Donating crypto to a registered nonprofit is another smart move. You skip the capital gains tax on crypto and might even deduct the full donation value. Just donate directly—don’t sell first—and make sure it’s a qualified charity (like a 501(c)(3) in the U.S.).
This strategy works best for generous holders sitting on long-term gains. Not as useful if you need the cash yourself or if you’re below gifting thresholds.
Still, it’s a win-win: do good and lower your tax bill.
Strategy 5: Use Crypto Retirement Accounts (Where Allowed)
If you’re thinking long-term, retirement accounts can be one of the smartest ways to avoid crypto taxes legally while growing your holdings.
In the U.S., platforms like iTrustCapital and Alto let you hold crypto inside a self-directed IRA.
A Traditional IRA lets you defer taxes until you withdraw in retirement.
A Roth IRA makes you pay taxes upfront, but all future gains and withdrawals are tax-free.
The best part: trading inside these accounts doesn’t trigger taxable events. You can swap Bitcoin for Ethereum or rebalance your positions, and it all stays off your tax return, as long as the funds stay inside the IRA. Read the full guide here.
In Australia, investors can use Self-Managed Super Funds (SMSFs) to hold crypto. Gains are tax-deferred, but the rules are strict and require ATO compliance. Read the full guide here.
In Canada, direct crypto isn’t allowed in TFSA or RRSP, but Bitcoin and Ethereum ETFs are. Gains inside a TFSA? Completely tax-free. Read the full guide here.
Wondering how to avoid paying taxes on crypto while still building your portfolio? This is one answer.
This strategy suits long-term HODLers with retirement in mind. Not so useful if you need access to your funds sooner.
But if you play the long game, retirement wrappers can eliminate capital gains tax on crypto entirely.
Countries With Zero or Low Crypto Taxes
Still wondering how to avoid paying taxes on crypto? In some cases, the best move is… well, an actual move.
Several countries offer low or zero tax on crypto, especially for long-term holders or individuals not using it as a business. These are called crypto tax-friendly countries. If you’re planning to hold large amounts or cash out millions, relocating could save you a fortune. Here’s a breakdown of some top destinations:
El Salvador
El Salvador made Bitcoin legal tender and offers zero capital gains tax for foreign investors. The government is all-in on crypto and actively encourages Bitcoin adoption.
It’s a strong option if you’re open to relocating and want a country that embraces crypto with open arms.
Dubai
Dubai has no personal income tax and no capital gains tax on crypto. You can sell or swap your coins without giving a cut to the government. Some even call it a crypto tax haven.
Read our in-depth Dubai crypto tax haven guide here.
The only catch? There’s a new corporate tax, but it only applies to businesses making over ~$100,000 a year. If you’re not running a crypto company, you’re likely in the clear.
Add to that great infrastructure and a growing crypto scene—Dubai is a top pick for high-net-worth investors.
Singapore
Singapore doesn’t tax capital gains at all. So if you’re buying and selling crypto as a private investor, you pay zero tax.
If you run a crypto-related business, though, some income taxes may apply. Still, for everyday traders or long-term holders, Singapore remains one of the most crypto-friendly countries around.
Puerto Rico (Act 60 specifics for U.S. citizens)
U.S. citizens normally can’t escape IRS rules—unless they move to Puerto Rico.
Under Act 60, if you live in Puerto Rico at least 183 days a year and apply for the tax incentive program, you can qualify for 0% capital gains tax on crypto. No need to renounce your U.S. citizenship.
It’s one of the few ways Americans can avoid crypto taxes legally, but you have to follow the rules closely.
A Few Things to Keep in Mind
Moving to a tax-friendly country isn’t just about hopping on a plane. You’ll need to:
- Meet residency requirements
- Possibly give up tax residency in your current country
- Follow local rules (which can vary a lot)
Each country has different conditions. Some give tax breaks only after you’ve been a resident for a full year. Others may require paperwork, fees, or donations.
Bottom line: If you’re sitting on big gains and wondering how to avoid paying taxes on crypto or how to cash out crypto without paying taxes, moving to the right country might be your best long-term strategy.
But don’t go it alone. Talk to a local tax advisor before you pack your bags. It could save you more than just taxes.
You can also read this guide to learn more about crypto taxes for digital nomads.
Crypto Tax Avoidance vs Evasion: Risky & Possibly Illegal Tactics
There’s a big difference between avoiding crypto taxes legally and crossing the line into tax evasion. The first saves you money. The second can land you in serious trouble.
Some crypto users think they can stay under the radar—but that’s getting harder by the day. Here are some common tactics that might feel clever but carry major risks:
- Non-KYC wallets and peer-to-peer sales: No ID check doesn’t mean no trace. If you profit, you still have to report it.
- Not reporting staking rewards or NFT income: That’s considered tax fraud in many countries. Agencies like the IRS and CRA are using blockchain forensics to trace it all.
- Using DEXs with no recordkeeping: DeFi isn’t immune. Tools like Chainalysis can link wallet addresses to real-world identities.
- Offshore exchanges: Hiding funds overseas won’t work forever. U.S. citizens must report foreign holdings under FBAR and FATCA.
And let’s be clear—hiding crypto, claiming coins were “lost,” or faking wallets? That’s not aggressive tax planning. That’s criminal behavior.
Plus, the rules are tightening. Here’s what’s coming:
- Form 1099-DA: It’s official now, starting in 2025, U.S. exchanges will report your trades directly to the IRS.
- OECD’s CARF: Global tax reporting is coming. Exchanges will start sharing user data across borders.
- EU’s DAC8 and MiCA: More surveillance, more reporting, less room to hide.
- FATF Travel Rule: Even basic transfers may trigger KYC requirements.
Bottom line: If you’re asking how to avoid paying taxes on crypto, stick to legal strategies like HODLing, tax-loss harvesting, or crypto IRAs. The shortcuts can cost you way more than taxes ever will.
Best Practices to Avoid Paying Taxes on Crypto (As Much As Legally Possible)
If you’re serious about how to avoid paying taxes on crypto without getting burned, stick to smart, legal strategies—and stay organized.
Start by using crypto tax tools like Bitcoin.Tax to track every trade, gain, loss, and staking reward. These platforms connect to your wallets and exchanges, handle cost basis calculations, and generate forms like Form 8949 and Schedule D. Way easier than doing it manually.
Next, work with a crypto-savvy CPA—especially if you’re deep into DeFi, own NFTs, or hold assets on bankrupt platforms. Don’t just hire any accountant. Look for someone with actual crypto experience, strong tech skills, and a solid track record working with crypto clients. Read this guide on choosing the best crypto CPA.
Finally, pay attention to where you live. Some crypto tax loopholes only apply in certain countries. Holding for a year in Germany? Tax-free. Same move in the U.S.? Just a lower tax rate. Big difference.
Read our country-specific crypto tax guides to learn your local crypto tax laws.
So use the tools, hire the right experts, and learn the local laws. That’s the best way to avoid crypto taxes legally—without risking penalties or sleepless nights.