How to Avoid Taxes on Crypto in 2026

Want to know how to avoid taxes on crypto in 2026? There's no legal way to outright avoid them, but there are plenty of ways to reduce your crypto tax bill without facing the wrath of the IRS. Our guide covers 10 simple strategies on how to avoid capital gains tax on crypto.

How to avoid capital gains tax on crypto

You can't legally avoid your tax liability (without penalties anyway), but 10 strategies to help you reduce your crypto tax burden include:

1. Track and harvest unrealised losses

2. HODL

3. Pick the best cost basis accounting method

4. Utilize tax-free thresholds

5. Gift or donate crypto

6. Use crypto loans to spend

7. Invest in an IRA

8. Take profits strategically

9. Move to a crypto-friendly state

10. Use a crypto tax calculator

Track & harvest unrealized losses

Down bad? Your losses are good news for your tax bill, because you can offset them against your capital gains to reduce your overall liability. There's no limit to the amount of capital losses you can offset, and you can offset them against capital gains from other assets, like stocks.

In even better news, if your capital losses exceed your capital gains, you can offset an additional $3,000 a year in capital losses against ordinary income, as well as carry forward any unutilized losses indefinitely.

Using a crypto portfolio tracker can help you strategically track unrealized losses (and even simulate the impact realizing them would have on your tax bill). It's a common strategy known as tax loss harvesting.

Hold

Diamond hands are rewarded... when it comes to tax rates at least.

Long-term capital gains are taxed at a much lower rate, between 0% and 20% (or 28% for long-term gains from NFTs deemed collectibles). Meanwhile, short-term capital gains are taxed at the ordinary income tax rates.

Pick the best cost basis accounting method

A cost basis method is the accounting method you use to identify your purchase price when you're dealing with multiple assets of the same kind, like crypto or stocks.

The method you pick can make a huge difference to how much tax you'll pay. The IRS says investors should use the Spec ID accounting method (where you specifically identify each unit sold). But thanks to this flexibility, there are a lot of other cost basis accounting methods on offer, including:

• FIFO (First In, First Out)

• HIFO (Highest In, First Out)

• LIFO (Lowest In, First Out)

There is no 'best method'; it all depends on your assets and transactions. Learn more in our cost basis guide or use a crypto tax calculator to compare how different methods impact your tax bill.

Utilize tax-free thresholds & deductions

Many opt for the standard tax deduction ($15,750 for 2025), but depending on your circumstances, itemizing your deductions can result in a lower bill. Common deductions include:

• Student loan interest

• Child tax credit

• Medical expenses

• IRA contributions

• Health Savings Account contributions

Gift & donate crypto

Giving never felt better, because when it comes to crypto, it benefits you too.

Every taxpayer gets an annual tax exclusion per gifteee ($19,000 for 2025), and even donations over this amount are tax free provided you're under the lifetime gift tax exemption ($13.99 million for 2025).

Alternatively, when you donate crypto, you can itemize it as a tax deduction, provided the charity is a 501(c)3 status registered charity (check the exempt organization database). If you donate you'll need to file Form 8283 and any donations over $5,000 must be appraised by an independent and qualified party.

Get a crypto loan

Tempted to cash out because you need liqudity? Consider a loan instead.

You can put your crypto up as collateral to get cash when you need it, and pay back the loan over time, so you never cash out your crypto and create a taxable event.

A word of warning on this though: the IRS has no guidance on the tax implications of crypto loans. In some instances, for DeFi loans, may create potentially taxable events if you receive tokens in return for your collateral.

Find out more in our crypto loans guide.

Invest in an IRA

One of the most effective strategies to optimize your taxes is to invest in your retirement fund. For crypto, an excellent choice for these is a Bitcoin IRA.

Take profits strategically

If you have the luxury of time on your side, you can always try to wait out a lower tax rate.

Whether that's holding, switching jobs, or gifting to your spouse in a lower income tax bracket, holding off on realizing your gain strategically can cut your tax bill dramatically.

Move to a crypto-friendly state

It's not just federal taxes you'll pay on crypto gains, you'll also pay any state taxes. That means living in a state with no income tax like Texas or Florida means you'll pay a lot less than in a state like California or New York.

Even in states where there is a state income tax, many have favourable conditions for capital gains income. For example, Missouri just exempted all capital gains and Montana taxes long-term capital gains at a more favourable rate.

Check out our state crypto tax rate guide to learn more.

Use a crypto tax calculator

Using the right tools for the job helps you not only accurately calculate any tax due to avoid overpaying, but a crypto tax calculator like Koinly can also help you strategize and reduce your tax liability with features like an asset maturity dashboard and a tax optimization tool.

Remember, if you're optimizing your taxes, you need to do it ahead of the EOFY on December 31.