How to Legally Minimize Crypto Taxes in 2023

David Canedo, CPA

Written by David Canedo, CPA

May 3, 2023

For crypto investors, it's been a wild ride. From the dizzying heights of 2021 to the gut-wrenching lows of 2022 and beyond, the rollercoaster has left many investors reeling, with some even questioning the long-term viability of digital assets. But there's still hope to be found for those who remain committed to the space.

Last Updated: May 3, 2023

Savvy investors are turning to legal strategies to help ease the tax burden. In this guide, we'll explore some of the most effective ways to minimize your tax liability while holding and trading cryptocurrencies so that you can keep more of your hard-earned gains in your pocket.

Moving to a Taxpayer-Friendly State

As a crypto investor, moving to a more taxpayer-friendly state is one of the most effective ways to reduce your tax burden legally. While the federal government imposes taxes on cryptocurrency transactions like any other investment, states have unique tax laws that can significantly impact your overall liability. Some states have no state income tax, meaning any income (such as staking, hard forks) and capital gains would be state-tax-free. When you consider that state taxes can be as high as 10.9% in New York or 13.3% in California, it’s easy to see how moving to a more taxpayer-friendly state can significantly impact your after-tax wealth. The same investor facing a 23.8% tax rate on long-term Bitcoin gains in Florida could see up to a 37.1% rate in California.

States without Income Tax

These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. Washington does not have a state income tax, although the state enacted a capital-gains tax effective for tax years starting in 2022; this tax is currently being challenged as unconstitutional, leaving taxpayers uncertain about the taxation of capital gains going forward. New Hampshire also has odd laws as it only taxes interest and dividends; the state imposes a tax on residents whose interest and dividend income exceeds $2,400 during the taxable year ($4,800 if they file jointly).

Wyoming has become a popular destination for crypto investors due to its favorable tax environment and progressive approach to cryptocurrency regulation. With no state income tax and a variety of crypto-friendly laws, Wyoming has positioned itself as a trailblazer in the digital asset industry. The state has enacted legislation that exempts cryptocurrencies from property taxes, established a Special Purpose Depository Institution Bank Charter (SPDI) for digital asset banks, and created a clear regulatory framework for blockchain-based businesses. Additionally, Wyoming's innovative stance on blockchain and cryptocurrency regulation has been strongly influenced by Caitlin Long, a prominent figure in the digital asset space.

Other states, including Texas and Florida, have also implemented measures to attract cryptocurrency investors and businesses. Texas provides various incentives to encourage economic development and innovation, boasting a strong tech sector that has drawn numerous blockchain and cryptocurrency startups. With a low regulatory environment, a skilled workforce, and a business-friendly climate, Texas presents an appealing destination for both entrepreneurs and investors.

Florida similarly offers a range of incentives for investors and entrepreneurs, such as a homestead exemption that can potentially lower property tax bills for homeowners. The state's appealing climate and quality of life, combined with its expanding tech sector and business-friendly policies, make it an increasingly popular choice for crypto investors and entrepreneurs. Political leadership in Florida has also been pro-crypto, as Miami’s mayor, Francis Suarez, and Florida’s governor, Ron DeSantis, have both been advocates for Bitcoin and cryptocurrencies.

Of course, moving to a new state is a major decision that should not be taken lightly. Before making a move, it's important to consider factors such as job opportunities, cost of living, and quality of life. Additionally, you'll need to establish residency in the new state, which requires more than simply changing your mailing address. But, the potential tax savings can be significant for those willing to move.

Moving to Puerto Rico

For crypto investors looking to minimize their tax burden, Puerto Rico has emerged as an attractive destination with unique tax incentives. The island territory offers new residents a range of tax benefits, including a 0% tax rate on capital gains and a 4% corporate tax rate for certain types of businesses. Yes, that is a 0% rate on capital gains! Keep in mind that gains will be taxed by the federal government up until the point of qualifying as a Puerto Rico resident, so while you can’t evade the unrealized gains you are sitting on today, you can still avoid taxation if you do this before your coins go to the moon.

Remember that moving to Puerto Rico requires careful consideration of the island's unique tax laws and regulations. Investors must establish bona fide residency in Puerto Rico, which involves spending at least 183 days a year on the island and meeting other requirements. Investors must carefully navigate the complexities of the territory's tax code and ensure compliance with Puerto Rican and US federal tax laws, so working with a professional with experience in Puerto Rico is recommended. Also, make sure you take a trip to the island and really get a feel for the place, and ask yourself if you can actually picture yourself living there.

Overall, for those willing to put in the effort and navigate the complexities, moving to Puerto Rico can provide significant tax savings for cryptocurrency investors during bull runs. However, it's important to seek the advice of a qualified tax professional before making any decisions and carefully weigh the potential benefits and drawbacks before making a move. For those interested in finding a knowledgeable and experienced tax professional, we recommend checking out our Accointing for Professionals and Partners Page, where you can discover professionals who can provide you with great value.

Buying Crypto in a Retirement Account

One of the most effective strategies for crypto investors looking to avoid taxes is to buy cryptocurrency as part of a retirement account. Retirement accounts, such as self-directed IRAs, allow investors to potentially avoid capital gains taxes on their crypto investments while providing tax-deferred or tax-free growth. Investing in crypto through a retirement account can also offer asset protection and estate planning benefits.

Self-directed IRAs, in particular, allow investors to invest in alternative assets such as real estate, precious metals, and cryptocurrencies. This means that investors can potentially benefit from crypto gains without triggering capital gains taxes until they withdraw the funds from the account. While not all IRA providers offer the option to invest in crypto, several self-directed IRA custodians such as iTrustCapital, Bitcoin IRA, and Coin IRA offer this option.

However, it's important to note that investing in crypto through a retirement account does come with certain limitations and considerations. For example, contributions to traditional IRAs may be tax-deductible, but withdrawals in retirement are subject to ordinary income taxes. On the other hand, Roth IRAs require post-tax contributions but allow for tax-free withdrawals in retirement as long as certain requirements are met. Additionally, investors must comply with IRS rules and regulations regarding self-directed IRAs, including reporting requirements for offshore accounts and assets.

Overall, investing in crypto through a retirement account can be an effective strategy for crypto investors looking to minimize their tax liability and potentially gain asset protection and estate planning benefits. However, investors must carefully consider the limitations and requirements of their retirement accounts and comply with IRS rules and regulations. By doing so, investors can potentially maximize their after-tax funds and achieve their financial goals.

Selling Coins in Years of Lower Income

One strategy for crypto investors looking to minimize their tax liability is to sell their coins in years of lower income. This is because the capital gain tax rates are based on the investor's income bracket in a given year - that’s right, the higher your ordinary tax rates, the higher your capital gain rates. If taxable income is under $44,625 ($89,250 married filing jointly), then any capital gains included in that amount will be taxed at 0%. Investors can pay a lower tax rate on their gains by taking profits in a year when personal income is low.

While many taxpayers may lack the resources or opportunities to manage their taxable income proactively, there are certain circumstances in which such actions can prove highly advantageous. For instance, business owners can collaborate with their accounting professionals to strategically manage their income levels to remain under key tax thresholds. In addition, individuals who experience a job loss or reduced working hours may find themselves in a lower income tax bracket, which can translate into significant savings come tax season.

While this strategy can be highly effective, it requires careful planning and thoughtful consideration. It's important to remember that capital gains from investments, including cryptocurrency, are considered taxable income and could push a taxpayer into a higher tax bracket if not managed carefully. Before deciding to sell cryptocurrency assets, investors should thoroughly evaluate their current financial situation and future income prospects.

Tax Loss Harvesting

Many of the previous strategies require you to relocate physically or to invest your assets into accounts that you'll not be able to liquidate (without penalties) until retirement years. However, every investor can use the single most effective strategy for minimizing their tax liability when it comes to cryptocurrency investments - tax loss harvesting. The strategy involves selling off investments that have lost value to offset the tax liability of your gains. This can be an incredibly valuable tool for cryptocurrency investors who have suffered significant losses in the market and want to reduce their overall tax burden.

The key to successful tax loss harvesting is careful planning and strategic execution. Investors need to be mindful of the wash-sale rule, which states that losses cannot be claimed on a security bought back within 30 days of the sale. This means that investors need to be strategic about which investments they sell and when to maximize the tax benefits of their losses. While the wash-sale rule doesn’t officially apply to digital assets yet, this was included in Biden’s budget proposal, suggesting that this loophole will be closed soon. We would recommend not engaging in wash sales.

How to Easily Harvest Your Crypto Losses

When it comes to tax loss harvesting, the most common approach is to sell off underperforming assets at the end of the year to offset other realized gains throughout the year, whether crypto gains or capital gains from other assets. This strategy is commonly used by Wall Street veterans close to year-end - why do you think we saw such volatility in Tesla late last year?

Another approach is to sell off underperforming assets and use the proceeds to offset gains from other investments as you trade. Suppose you have 1 BTC you wish to liquidate today for $22,000, but you purchased this for $5,000 in 2017. You know that if you sell this, you'll have a gain of $17,000 ($22,000 - $5,000), but if you can find a position that is $17,000 in the hole, you could also sell that position and effectively take your BTC gain tax-free. Whatever approach investors take, the key is to carefully evaluate their investments and develop a strategic plan for minimizing their tax liability.

The Tax Loss Harvesting Tool by Accointing by Glassnode helps you identify the unrealized losses in your crypto coins and sell the coins that will generate the biggest loss. It breaks down your assets into wallets and tax lots, ordered by earliest to most recent, and provides data on the potential tax impact of each position. By using the tool, you can make informed decisions about which positions to liquidate and minimize your tax bill effectively.


After examining various strategies to reduce crypto taxes, such as moving to tax-friendly regions, investing in retirement accounts, and tax loss harvesting, it's clear that each method has its own set of benefits and drawbacks. Investors should assess their personal situations and select the strategy that best suits their requirements.

It's essential to collaborate with reliable tax and financial consultants to create a comprehensive plan that accounts for your entire financial situation. By being proactive and strategic in your tax planning, you can increase your post-tax earnings and minimize the tax implications on your crypto investments. Overall, with the right approach and guidance, you can effectively manage your crypto taxes and achieve your financial objectives.

The information contained in this guide, including any supplemental materials, is for general information purposes and does not constitute financial, investment, legal, or tax advice. The present content is not intended as a thorough, in-depth analysis, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Please consult your tax advisor.