2025 Year-End Crypto Tax Strategies to Reduce Your Tax Bill

2025 has been a strong year for cryptocurrency investors, with Bitcoin reaching new all-time highs.

But your high profits can also produce high taxes.

Key point: you owe taxes only when you sell your crypto or use it to buy goods or services.

Still, the issue remains: large gains can trigger large tax liabilities.

Fortunately, you can use several smart year-end strategies to reduce both your 2025 crypto tax bill and the taxes you will pay on future gains.

Step Up Tax Basis with Tax-Gain Harvesting

If you expect your income to increase next year and you believe your crypto will continue to rise in value, consider stepping up your basis by harvesting gains.

Here’s how it works: you sell your crypto now, recognize the gain, and then immediately repurchase the position. This gives you a new, higher tax basis.

Example

You bought one Bitcoin three years ago for $20,000. You sell it today for $110,000, triggering a $90,000 long-term capital gain taxed at your 15 percent long-term capital gains rate. You then repurchase a new Bitcoin for $110,000.

Your new basis is $110,000. If Bitcoin climbs to $140,000 next year, your taxable gain is only $30,000 instead of $120,000.

Key point: if you’ve held the crypto less than one year, the gain is taxed as ordinary income. If that applies to you, it may be better to wait until you reach long-term capital gains status before selling.

Harvest Your Losses

Even with Bitcoin at record highs, you may still hold losses in other cryptocurrencies.

If you do, consider selling those positions before year-end. Crypto losses are capital losses and can offset capital gains from crypto or traditional investments sold at a profit.

Short-term losses apply to crypto held under one year. Long-term losses apply to crypto held more than one year.

When offsetting losses:

1. Use short-term losses against short-term gains.
2. Use long-term losses against long-term gains.
3. Once losses exceed gains of one category, apply the excess to the other category.

If your total losses exceed your total gains, you may deduct up to $3,000 against ordinary income this year and carry forward unused losses to future years.

Wash Sales

What about the wash-sale rule for stocks and securities?

Good news: it does not apply to cryptocurrency. The IRS treats crypto as property, not a security, so there is no 30-day restriction before or after a sale.

Example

You bought 100 Solana for $23,100 in January 2024. You sell the position on October 24, 2025, for $18,600 and realize a $4,500 short-term loss. You can immediately reinvest the $18,600 back into Solana or any other token. You don’t need to wait 30 days.

Donate Crypto to Charity

If you itemize deductions and want to support charity, donating appreciated crypto can be a powerful strategy. You receive two benefits:

1. You avoid capital gains tax on appreciated crypto.
2. You receive a charitable deduction equal to the crypto’s fair market value at the time of donation.

You must donate to a qualified Section 501(c)(3) organization. Many charities now accept crypto directly. You can also contribute to a donor-advised fund (DAF), allowing you to deduct the full donation this year while distributing grants to charities in future years.

To benefit from your donation, your total itemized deductions must exceed the standard deduction, which for 2025 is $15,750 for singles and $31,500 for married couples filing jointly.

Donation rules:

• Held more than one year: deduct fair market value
• Held less than one year: deduction limited to cost basis or fair market value, whichever is lower
• Deduction limited to 30 percent of adjusted gross income

Example

Jane bought one Bitcoin for $20,000 three years ago. She donates it to the Red Cross at its current value of $110,000. She receives a $110,000 deduction and avoids tax on her $90,000 gain.

When donating crypto, you must obtain written acknowledgment from the charity confirming the donation details. If donating more than $5,000 of crypto, you need an appraisal and must complete IRS Form 8283.

Gift Crypto

You can gift crypto to family members or loved ones. For 2025, you may gift up to $19,000 per recipient without filing a gift tax return. Married couples may gift up to $38,000 per recipient.

If you exceed the limit, you must file Form 709, but you still normally owe no gift tax unless your lifetime gifts exceed the lifetime exemption, which is $13.99 million in 2025.

Gifts are not deductible by you and not taxable to the recipient until they sell the crypto.

Example

Saul bought 0.10 Bitcoin for $1,500. It is now worth $10,000. He gifts it to his granddaughter. No one owes tax. The granddaughter’s basis is $1,500.

It’s wise to provide the recipient with a letter documenting the gift, including acquisition date, basis, and valuation at the time of transfer.

Establish a Self-Directed IRA for Crypto

If you want to buy more crypto, consider purchasing it inside a self-directed IRA (SDIRA). Most conventional IRAs do not allow direct crypto purchases, but SDIRAs do.

SDIRAs can be either traditional or Roth:

• Traditional IRA: contributions may be deductible; withdrawals taxed as ordinary income after age 59½
• Roth IRA: contributions not deductible; withdrawals tax-free if requirements are met

For 2025, the contribution limit is $7,000 or $8,000 if age 50 or older.

You must fund an SDIRA with cash, not crypto. You can sell crypto and use the proceeds to fund it or roll over funds from an existing retirement plan.

Crypto purchased inside a traditional IRA is taxed only upon withdrawal. Crypto purchased in a Roth IRA grows and can be withdrawn tax-free if guidelines are followed.

You may establish a 2025 IRA up until April 15, 2026.

Establish a Self-Directed 401(k) for Crypto

Some employer 401(k) plans permit crypto investments, but many do not. If you’re self-employed with no employees other than your spouse, you can establish a self-directed solo 401(k) and use it to buy crypto.

Solo 401(k)s allow much higher contribution limits than IRAs and come in both traditional and Roth versions.

If your plan is established before December 31, 2025, you may make employee contributions up to:

• $23,500 if under age 50
• $31,000 if age 50 through 59 or age 64 or older
• $34,750 if ages 60 through 63

You can also make employer contributions up to 25 percent of compensation. Total contributions between employee and employer cannot exceed:

• $70,000 if under age 50
• $77,500 if age 50 through 59 or age 64 or older
• $81,250 if ages 60 through 63

A self-directed 401(k) requires a written plan and a custodial trust account.

Employee contributions must be made by December 31, so time is limited.

Takeaways

You have several effective year-end crypto tax strategies:

1. Sell crypto that has declined in value to generate capital losses you can deduct.
2. Step up basis in appreciated crypto by harvesting gains and repurchasing positions.
3. Donate appreciated crypto to charity to receive a deduction and avoid capital gains.
4. Gift crypto to family members using the annual exclusion rules.
5. Use a self-directed IRA or solo 401(k) to buy crypto inside a tax-advantaged account.