Cash Out Bitcoin Without Paying Taxes

Read our Advertiser Disclosure.
Contributor, Benzinga
December 22, 2020

Virtual currency and investing in crypto assets continuously grow in popularity. With this always increasing legitimacy as a valid form of asset, more laws and regulations are being set surrounding how Bitcoin is defined for federal tax purposes.

With IRS Notice 2014-21, the IRS clarifies that Bitcoin and other forms of virtual currency are considered property for federal tax purposes — trading or using Bitcoin in any way that earns you income is subject to taxation. While there’s no way to avoid U.S. tax law as a U.S. resident, there are some best practices you can follow and platforms you can use to minimize your tax obligation.

Check out Benzinga’s guide to cashing out Bitcoin without paying or minimizing your taxes and connect with our expert Bitcoin investment and tax preparation partners.

The Rules on Bitcoin Tax

Like any capital asset or investment, buying and trading Bitcoin results in capital gains or losses. If you sell Bitcoin, the variation in the market value when you purchased it versus when it sells leads to either a capital gain (you sold it for more) or a capital loss (you sold it for less).

Three main factors determine your capital gain tax rates: your income, marital status and how long you hold an asset before trading, selling or disposing of it. Bitcoin held for less than 12 months is considered a short-term capital gain or loss whereas Bitcoin held for longer than that is classified as a long-term capital gain or loss. 

If your long-term capital gains exceed your capital losses for the year, you may be subject to a lower tax rate than your income tax rate. Generally, most people don’t pay higher than 15% on their net long-term capital gains, though a few exceptions apply.

Capital Gains Tax Rates

StatusIncomeTax Rate
AllUnder $78,7500%
Single$78,750 to $434,55015%
Married or Qualifying Widow(er) Filing Jointly$78,750 to $488,85015%
Married Filing Separately$78,750 to $244,42515%
AllTaxable income exceeds thresholds set at a 15% capital gain rate20%

Avoid Bitcoin Tax with an IRA

Investing in an Individual Retirement Account, or IRA, that allows you to buy and trade Bitcoin is a smart way to reduce your Bitcoin tax liability. Individual contributions you make to an IRA are deductible up to a certain amount. Employer contributions may be eligible for deductions as well in certain instances. Also, the income you earn from your Bitcoin trades in your IRA could potentially be tax-deferred until you withdraw them.

Here are a few platforms that specialize in virtual currency IRA trading:

Best For
  • Best Overall Crypto IRA
securely through iTrustCapital's website

iTrust Capital

iTrust Capital is a leading alternative investment IRA platform, empowering investors to trade these assets like crypto and precious metals in their retirement accounts. iTrust clients benefit from institutional-quality retirement account features, including tax-free trades, low fees, high liquidity with 24/7 trading and full legal compliance with all IRS and tax laws and guidelines.

iTrust Capital is available with a $29.95 per month subscription. Other fees include a 1% trade fee and fees for investing and holding precious metals like gold and silver. Every account comes equipped with the following features:

  • IRA Setup
  • Help to fund your IRA and transferring or rolling over funds
  • Tax reports for IRS 
  • Unlimited storage with institutional custodians 
  • Full access to iTrust Capital’s support system

You can fund your IRA with as little as $2,500. Schedule a call or message iTrust to set up your new crypto IRA today. 

Best For
  • Full Service Solution
securely through BitcoinIRA's website

Bitcoin IRA

What’s your favorite time to trade? With a bowl of late-night ice cream before bed? With your morning coffee after your workout? Bitcoin IRA is a digital IRA self-directed trade platform that allows you to buy, sell and trade Bitcoin at your leisure — 24 hours a day, 7 days a week — inside your retirement account.

Bitcoin IRA operates with a heavy focus on providing institutional-level security. It works with BitGo Trust, the world’s premier Bitcoin processor, to store your crypto assets securely and insure your funds up to $100 million in custody insurance. Bitcoin IRA also limits its dealings to custodians regulated by the U.S. to protect its client’s investments from companies that may operate under iffy local laws that don’t meet IRS standards.

If you’re looking for a secure, solid crypto retirement platform, Bitcoin IRA gets the job done. Once you follow a few easy steps to set up your account, your personalized dashboard and new digital wallet are ready to use. From there, funding your IRA is a simple 3-step process that will have you ready to trade within 5 business days.

Extreme Measures

The only way to truly avoid paying taxes on your Bitcoin is to renounce your U.S. citizenship. When you hold U.S. citizenship, you live under IRS tax law no matter what and have to pay taxes no matter where you live.

Giving up your citizenship can be an arduous process and shouldn’t be taken lightly. You’ll need a 2nd passport, which means you’ll need to buy it from a country like Malta or Panama, or you can move elsewhere and gain one by becoming a resident. 

You could also move to Puerto Rico, which is a U.S. territory but isn’t subject to federal tax laws. Puerto Rico’s tax laws allow certain businesses and investment management firms to pay only 4% in taxes. You can qualify for a 0% tax rate on short- and long-term capital gains if you meet certain standards under Act 22, like living on the island for 183 days per year, buying a home and so forth. 

Best Online Tax Platforms for Bitcoin

Filing your taxes gets a little more complicated when you throw Bitcoin in the mix, but there are already several platforms stepping up to meet the unique needs of crypto investors. Properly record, calculate and file your Bitcoin taxes with any of our digital tax preparation partners.

Best For
  • active traders
securely through TradeLog's website


To properly file your Bitcoin taxes, you need a logical, efficient record-keeping system. TradeLog is a platform providing a digital tax preparation software custom-fit to active traders and investors who need to keep a complete trading history for tax purposes. As a client, you are able to record, track and manage your complete trade history, including Bitcoin trades, for the entire tax year in one easy-to-view and edit section.

When you file Bitcoin taxes, you have to file Form 8949 to report your capital gains and losses. TradeLog uses your trade history to generate a tax report that includes your completed and accurate Form 8949. From there, you can file your report yourself or transfer it to platforms like TurboTax for e-filing.

TradeLog’s software has other features highly beneficial to active traders and investors. It’ll strategize with you to avoid tax consequences as the result of wash sales. While not completely avoidable, TradeLog dodges the worst of them and protects you from hefty tax consequences 365 days a year while dialing in your overall investment strategy.

You’ll find many more tax services for active traders with TradeLog that you may find lacking in other tax preparation platforms. Check them out here. Or, use its free 30-day trial to get a feel for TradeLog yourself.  

Best For
  • Crypto Activity Data Aggregation
securely through CryptoTrader.Tax's website


CryptoTrader.Tax simplifies the process of e-filing your Bitcoin taxes. As a CryptoTrader.Tax user, you’ll have accurate, ready-to-file tax reports at your fingertips calculated from your trade history and Bitcoin income data. You can download your tax reports or link your account with tax preparation services like TurboTax and TaxAct. This allows you to easily file the whole of your taxes at once.

CryptoTrader.Tax works with every single available crypto exchange, so importing your trade history is uncomplicated and straightforward. CrytpoTrader.Tax calculates your crypto taxes using well-tested strategies designed to both minimize your tax obligation and guarantee the report you file with the IRS is accurate. 

You can start your tax report for free. CryptoTrader.Tax offers 4 subscription packages, which you’ll have to choose from in order to complete the process. Subscriptions range from $49-$299 per tax season. The number of trades you report will determine which level of coverage you need:

  • Hobbyist includes up to 100 trades
  • Day Trader includes up to 1,500 trades
  • High Volume Trader includes up to 5,000 trades and priority customer support
  • Unlimited includes unlimited trades and priority support

All packages include live support, free report previews, unlimited report revisions, IRS Form 8949, a capital gains report, TurboTax and Tax Act integration, tax-loss harvesting and more. 

Minimize Your Bitcoin Tax Obligation

While you may not be fully able to escape taxes on your Bitcoin trades, there are many (perfectly legal and frequently used) ways you can reduce or fully avoid your tax obligation. Smart investment strategies, like trading Bitcoin in a tax-advantaged IRA or capitalizing on long-term capital gains tax rates, can soften the blow to your wallet come tax season.

It’s never too early to start tax optimizing your investments. Get in touch with any of our partners to connect with expert guidance and institutional-level investment and tax preparation services.

Disclaimer: Tax avoidance is a criminal offense. Always seek professional, legal advice before redeeming gains in cryptocurrencies.