How To Minimize Your Crypto Tax For Life

Level 2 - Value Investor

Welcome Avatar! We’re in the peak of tax season right now, and you’re probably feeling the pain if you haven’t taken steps to optimize your taxes and structure yourself correctly.

There’s a reason the big dogs are printing record profits while paying less tax than ever.

Corporate tax structuring is one of the cornerstones of success in America and can be used to drastically lower your income taxes – even as an individual.

If you’ve already followed our advice and set up a business to escape the rat race, then you’re going to want to learn how to optimize your existing structure to maximize the amount of money you keep.

But if you’ve been slacking and haven’t gotten started on that side hustle, you’ll need all the help you can get. We’ve got a list of tax hacks at the end of this article, which will help you lower your tax bill as an individual.

As an additional note, we’re sure many of you are currently experiencing max pain doing your crypto taxes, so as a reminder, we recommend using Crypto Tax Calculator (same as always).

You can access CTC HERE and get 25% off your first year for being a BTB subscriber. Yes, this also operates as a ref link. (BTB25) the discount is at no cost to you.

Nevertheless, we suggest you stick with us the whole way and get up to speed.

This means navigating an alphabet soup of LLCs, S-Corps, C-Corps, and Trusts but by the end you’ll know how to set up a corporate tax structure and stop experiencing max-pain at tax time.

Let’s take a look at your options.

As usual none of this is legal or financial advice. Every situation is different, and you should seek your own professional advice. This is meant to give you an idea of what’s possible to put you on the right track while you try to escape the rat race.

Option 1 – Limited Liability Corporations (LLCs)

Think of an LLC as the gateway drug to corporate tax.

One of the reasons for this is that LLCs are flexible business entities that offer different “pass-through” tax options, shield you from personal liability, and have the ability to take on investors.

A pass-through entity allows for the profits from your business to flow directly to your personal tax return.

In simple terms, this means that the business’s profits are not taxed at the corporate tax rate, but instead flow to the owner’s personal tax return. This saves the profits from being double taxed; first at the corporate level and then again at the individual level.

It gets even better for those who live in tax-friendly states because you can start stacking different tax laws for some killer combos.

For example, LLCs in Wyoming and Texas aren’t required to withhold state income taxes for their members (owners). Wyoming is also one of the most crypto-friendly states, recognizing crypto as property and offering DAO LLC structures. Incorporating your business in one of these states can lead to more tax-friendly laws when it comes to taxes.

Setting up an LLC

To create an LLC in the US, you need to file and register with the state you choose to incorporate in.

Each state may have slightly different steps and regulations. No point in writing out all 50 individual states' regulations. Google search is your friend here.

Autist note: You do not have to live and operate in the same state where you are registered, but you may not be able to take full advantage of the tax-friendly jurisdiction if you live and operate in a high-tax state such as California or Illinois, where you are subject to their tax code.

Another one of the main benefits of creating an LLC for your crypto activity is to shield yourself from personal liability and take advantage of friendly tax laws.

But it doesn’t make you bulletproof. It’s important to note that anytime an owner of an LLC mismanages funds, including mixing/commingling funds, not filing taxes or following LLC formalities, they lose their personal liability shield and open their personal assets to liability.

What does that mean? If you get sued or any assets are seized, the opposing party can come after your personal assets, such as your house or car. By maintaining separate and distinct business activities and accounts, you do risk losing your personal assets for acts of the business.

Thankfully, mismanagement of funds is famously rare in crypto.

Maintaining total separation from personal and business assets is key, not only in LLCs, but all businesses. Oftentimes, the corporate taxes are owed by the company, and the IRS cannot come after the owner’s personal assets where there is no fraud or mismanagement.

LLCs with an S-Corp election

One of the key things to understand about an LLC is you can customize its structure.

One of the more popular tax structures of an LLC is to elect S-corp status, which, as mentioned before, is a pass-through entity where income is not subject to double taxation.

You can do this by filing Form 2553 with the IRS after creating your LLC. There are certain limitations to electing S-Corp status such as having over 100 members or having members that are not citizens or residents of the U.S.

Once you are registered, you can take full advantage of all the benefits S-Corps have to offer, like no self-employment tax (15.3%) on the distribution of profits! See the table below for a breakdown of how this works.

Before we start comparing apples to apples, another major benefit of an LLC with an S-Corp election is the ability to pay yourself a salary, which cannot be done with a regular LLC.

In a traditional LLC, all profits flow to the owner’s tax return. With an S-Corp election, you can take a percentage of the income of the business as a salary and save the remaining profits as distributions, which are not subject to self-employment tax.

Which LLC is best for me?

To make it clearer, here’s a table with some round numbers.

As you can see, in the same scenario, the LLC with S-Corp election pays HALF the amount of self-employment tax.

LLC with an S-Corp election are perfect for smaller businesses or single-member businesses that want to reduce tax liabilities. As an LLC, the owner has the ability to deduct business expenses including payroll and employee benefits, meaning you can save on your taxes by giving yourself benefits via the company rather than paying for things like health care, gym memberships, etc, out of pocket.

Option 2 – Trusts

As we’ve discussed before, trusts are a powerful tool for HNWIs.

Trusts offer asset protections, tax efficiency, estate planning, and a whole list of other benefits.

Autist note: Trusts are suited to those of you who want to structure your assets for long-term, generational wealth, rather than just tax minimization. Trusts tend to require more compliance and legal hurdles, so an LLC is typically the easiest way to go if cutting back on your taxes is your main focus. You can always add a trust later.

To create a trust, you must first find a trustee. A trustee is effectively the person that is going to manage the trust and its assets. This could be you in certain cases, and in other cases it cannot be you. Most sophisticated individuals tend to choose a professional trustee, such as a law firm, large bank, or other professional.

A trust is essentially a legal document or arrangement for the management of assets by another individual. The point is that you’re going to have to hand over a degree of control to a third party. But in return, you are effectively “distanced” from the assets to a degree which is where the tax and legal benefits start stacking up.

There are three main elements to a trust:

• The Grantor (person who creates the trust)

• The Trustee (person who manages the assets)

• The Beneficiary (person that receives the benefits of the trust)

Now, let’s get into the different types of trusts. It’s important to note that every trust is very different. No two trusts are alike, and each have different tax laws.

This means there also happens to be a huge list of Trusts to choose from, so we’ve stuck to the ones most relevant to our readers. Each one comes with different hurdles, so choosing the right one is essential.

The main thing you’ll need to think about is the level of control you retain, and what risks you are or are not protected from.

Revocable Living Trusts

A revocable living trust is beneficial for anyone who wants to actively manage the assets in the trust and participate in the overall direction of the estate.

You maintain control over the trust and can modify it at any time. Assets in a revocable living trust avoid probate but are still subject to estate taxes, and offer no protection from creditors.

Because of the lengthy and difficult nature of creating this type of trust, it's best to only establish one if you have an abundance of assets to manage.

Irrevocable Trusts

Irrevocable trusts are significantly less flexible, and you lose direct control over the trust, but they offer asset protection from lawsuits and creditors.

This type of trust is beneficial for long-term investing rather than active trading. Adding crypto that earns staking rewards to an Irrevocable Trust is a good use-case for HNWIs because they typically don't need the funds in the trust to live their daily life, and can allow for rewards to stack up over time.

They are also good if you have a tendency to blow money in the pump.fun casino.

Dynasty Trusts

A dynasty trust is as it sounds. It’s designed for multi-generational wealth transfer and protects assets over multiple generations. If this applies to you, congratulations and thank us later when you’re setting up your beneficiaries.

Unlike more traditional trusts that may expire after a couple of generations, dynasty trusts are designed to last indefinitely. Another main benefit of a dynasty transfer is that they don’t pay capital gains tax until a distribution is taken from the trust. That means you can degen away, making profits for future generations without the need to pay an immediate tax on the gains.

Charitable Remainder Trusts

A popular and common trust is the charitable remainder trust. This allows the owner to sell crypto tax-free inside of the trust and provides avenues for a lifetime yearly income stream. All remaining profits are donated to a charitable organization. This type of trust is beneficial for those of you who are truly altruistic-degens and want to trade at a high volume while donating a portion of income to charity.

Offshore Trusts

Offshore trusts are created in favorable jurisdictions like the Cayman Islands. This lets you take advantage of another country’s tax laws and provides asset protection from US lawsuits and creditors, but requires complex reporting on a yearly basis.

Option 3 – Move to Puerto Rico (aka, Act 60 for U.S. Taxpayers)

Act 60? Is this a Shakespeare play?

For those of you who are sick of paying taxes plus want to enjoy a year-round summer, the government has a special plan just for you.

Act 60 is known as the Puerto Rico’s Expert Services Act, and it is an incentive program designed to attract HNWIs and businesses to physically relocate to Puerto Rico.

The main appeal is that there are no US Federal taxes.

You enjoy 0% capital gain tax on assets acquired after moving to Puerto Rico. This applies to both your fiat and crypto-based investments, so if trading makes up a large portion of your income, then this could be a serious option.

Businesses pay a reduced tax rate, as low as 4% compared to the US’s 21% tax.

The trade-off is that you need to meet quite a few criteria to make this one work.

Become a bona fide Puerto Rico resident and spend a minimum of 183 days in Puerto Rico; establish a primary residence; get a driver’s license; make a charitable donation of a minimum of $10,000 per year; purchase real property for personal residence within the first 2 years; and file an annual report with the Puerto Rican government. Easy.

Hire an attorney for this one, as there’s too much paperwork to do on your own.

Option 4 – C-Corp

A C-Corp is what most people think of when they think of big businesses. Most NASDAQ companies are C-Corps these days.

Who benefits the most from creating a C-corp? Businesses looking to scale, go public, seeking large outside investors, retain earnings for growth, anticipate high-profit margins, etc. This one might only apply to a handful of you right now (although there are probably a few of you approaching or past this point in the jungle).

C-Corps benefit from a 21% flat tax, which is often lower than a person’s individual tax rate. Unlike pass-through entities (LLCs, S-Corps), C-Corps have the advantage of retaining earnings without immediate tax on the owners. Other benefits include tax-deductible business expenses such as salaries, healthcare, etc, and no self-employment tax (15.3%) for owners who receive salaries.

Some major disadvantages of C-corps include double taxation and extremely complex compliance requirements. All income of the business is taxed at a flat 21% but when profits are distributed as dividends, owners are required to pay additional taxes on them.

C-corps also require significant compliance formalities starting from the creation of the company. So this is really reserved for anyone with autist levels of compliance.

C-corps must also appoint directors, create bylaws, register with the state, obtain an EIN, comply with ongoing regulatory requirements, and much more.

In other words, employ an S-tier professional to help you manage this.

Bonus – Other clever tax tricks

Corporate tax structures are just one avenue.

For those of you operating as individuals, rather than entities, these are some of the strategies we used to minimize our crypto tax over the years before making the switch.

Wash sales

As of the time of writing this in Q1 2025, wash sales do not apply to crypto. Therefore, you can sell and reset your cost basis without penalty.

So, for example, if you purchased BTC at $100,000 (hoping you didn’t) but the current price is sitting at $80,000. You can sell that crypto and take a $20,000 loss, offsetting any other capital gains or other income. This is a type of tax-loss-harvesting and one of the most effective tools up your sleeve, especially if you didn’t de-risk your portfolio like we told you to.

Tax loss-harvesting

Tax loss-harvesting is a bit of a broad term and can be applied in a few ways.

Another tactic is to sell any underperforming assets towards the end of the tax year to register the loss and offset your gains. It’s up to you whether you then buy them back at the start of the new year.

Also, think of things like airdrops, random protocol rewards, worthless NFTs, or rugged memecoins that are gathering dust. Even if you ignore these they still carry a tax burden, so you’ll want to consider offloading them.

One of the reasons we use Crypto Tax Calculator (claim 25% off here) is that it has a tax loss-harvesting tool that scans your portfolio and identifies these opportunities for you.

A bit late for your 2024 reporting, but one to keep up the sleeve for this year.

Holding for more than one year

When it makes sense to, hold assets for longer than one year before selling them to take advantage of long-term gain tax rates.

The tax on assets held for longer than one year is significantly lower than on assets with a holding period of one year or less. This is because you will pay capital gains tax rates on those gains, rather than income tax rates.

Donations

Altruistic-degens can also donate crypto and write the donations off on their tax return, minimizing their income. If you want to take advantage of this, it’s required to get a qualified appraisal of all donated crypto above $5,000 or the IRS will likely reject your tax deduction for your contribution.

Now is the time to take action

There’s no hiding that these strategies all take time and effort to implement. But once you do, the benefits will be lifelong. Unless you take action now, you’ll be in the same uncomfortable spot next year.

Remember that no one is coming to save you – you create the exit yourself.

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Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce.

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