If you mine cryptocurrency, your mining hardware (ASICs, GPUs, mining rigs) and the electricity used to power them are fully deductible business expenses. Section 179 allows you to expense the full cost of equipment in the year of purchase rather than depreciating it over time.
A miner who spends $15,000 on ASICs and $8,000/year on electricity saves $5,750 in taxes at a 25% effective rate — plus Section 179 allows full first-year expensing of the hardware.
Document electricity usage with a dedicated circuit or smart meter. Keep all hardware receipts. If mining is a hobby, deductions are limited — structure as a business to maximize deductions.
When you donate appreciated cryptocurrency directly to a qualified 501(c)(3) charity, you avoid paying capital gains tax on the appreciation AND receive a charitable deduction for the full fair market value. This is one of the most powerful tax strategies available to crypto holders with large unrealized gains.
A crypto holder donates $50,000 of Bitcoin with a $5,000 cost basis. They avoid $10,710 in capital gains tax (23.8% on $45,000 gain) AND get a $50,000 charitable deduction worth $12,500 at a 25% rate — total tax benefit of $23,210.
Use a Donor Advised Fund (DAF) to donate crypto and grant to charities over time. Requires qualified appraisal for donations over $5,000 of non-publicly traded crypto.
Staking rewards are treated as ordinary income when received. However, losses from DeFi protocols, rug pulls, and worthless tokens may be deductible as casualty losses or worthless security losses under IRC §165. Proper documentation is critical.
A DeFi investor who lost $40,000 in a protocol hack and $20,000 in a rug pull may deduct those losses to offset $60,000 in other crypto gains — saving $14,280 at a 23.8% rate.
Document all DeFi losses with transaction records. Worthless token losses require proof the token has zero value. Consult a tax professional before claiming rug pull losses.
Sell cryptocurrency at a loss to offset capital gains from other investments. Unlike stocks, crypto is NOT subject to the wash-sale rule, so you can immediately repurchase the same asset.
An investor with $80,000 in crypto gains and $50,000 in crypto losses nets $30,000 in taxable gains — saving $11,900 at a 23.8% long-term rate vs. paying on the full $80,000.
Harvest losses before December 31. Immediately repurchase to maintain market exposure — no 30-day waiting period required for crypto. Track cost basis meticulously.
A UNK client had $45,000 in unrealized losses across several altcoin positions during a market correction. He also had $60,000 in capital gains from selling Bitcoin earlier in the year. Uncle Kam identified the key advantage: unlike stocks, cryptocurrency is not subject to the wash-sale rule. The client sold the losing positions, harvested $45,000 in losses, and immediately repurchased the same coins — maintaining his full market exposure. The $45,000 in losses offset $45,000 of his gains, reducing his net capital gain to $15,000.
Hold crypto with unrealized losses? You can harvest them today and repurchase immediately. Book a call before year-end to capture your losses.
Be the Next Win — Book a CallNo — as of 2026, the wash-sale rule (which disallows a loss if you repurchase the same security within 30 days) does not apply to cryptocurrency. The IRS classifies crypto as property, not a security, so you can sell crypto at a loss and immediately repurchase the same coin without losing the tax deduction. This may change with future legislation, but for now it is a significant advantage over stock tax-loss harvesting.
The IRS treats cryptocurrency as property. Selling, trading, or spending crypto triggers a capital gain or loss equal to the difference between your cost basis and the sale price. Short-term gains (held less than 1 year) are taxed as ordinary income; long-term gains (held more than 1 year) are taxed at 0%, 15%, or 20% depending on your income. Receiving crypto as payment for services is taxed as ordinary income.
Net capital losses (including crypto losses) can offset up to $3,000 of ordinary income per year. Losses above $3,000 carry forward to future years to offset future capital gains or additional ordinary income. There is no limit on how many years losses can carry forward.
Trading one cryptocurrency for another (e.g., Bitcoin for Ethereum) is a taxable event — you must report the gain or loss on each trade. Using crypto to purchase goods or services is also taxable. Simply holding crypto (HODLing) is not a taxable event. Receiving crypto as a gift is not taxable until you sell it (your basis is the donor's basis or the fair market value on the date of the gift, whichever is lower).
You must track: the date of each acquisition, the cost basis (purchase price plus fees), the date of each sale or exchange, the sale proceeds, and the resulting gain or loss. For large portfolios with many transactions, crypto tax software (CoinTracker, Koinly, TaxBit) can automate this tracking. The IRS requires you to report all crypto transactions, and exchanges are required to issue 1099s for transactions above certain thresholds.
Web3 founders and DAO contributors can deduct token compensation paid to contributors (as ordinary business expenses), smart contract audit fees, legal fees for token structuring and regulatory compliance, protocol development costs, and governance participation expenses. Token compensation paid to contributors is deductible at fair market value on the date of transfer.
A Web3 founder who pays $80,000 in token compensation to contributors and $30,000 in smart contract audits deducts $110,000 — saving $27,500 at a 25% rate.
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Web3 startups and founders face unique legal and regulatory costs including token structuring opinions, SEC no-action letters, DAO legal formation, terms of service drafting, privacy policy compliance, and ongoing regulatory counsel. All of these are deductible as ordinary and necessary business expenses under IRC §162.
A Web3 founder who spends $60,000 on legal fees for token structuring and SEC compliance deducts the full amount — saving $15,000 at a 25% rate.
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Each cryptocurrency trade, swap, or exchange is a taxable event. Proper structuring — holding periods, loss harvesting, and entity selection — can dramatically reduce crypto tax liability.
A trader with $200,000 in short-term crypto gains who restructures to maximize long-term holds and harvests $60,000 in losses saves $37,000 in taxes.
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Unlike stocks, crypto is NOT subject to the wash-sale rule (IRC §1091) — you can sell at a loss, immediately rebuy, and still claim the full deduction. This is the #1 crypto tax strategy.
Donating appreciated crypto directly to charity lets you deduct the full fair market value AND avoid capital gains tax — worth 20–37% more than selling and donating cash.
Mining income is taxed as ordinary income at receipt — but mining equipment and electricity costs are fully deductible business expenses under IRC §162.
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