Renowned crypto lawyer and XRP advocate Jeremy Hogan has delivered some nuggets on how US citizens can minimize how much they spend in crypto taxes this 2024. In his tweet on X (formerly Twitter), he highlighted the importance of planning for your taxes alongside your profit strategy in crypto.
“Dear U.S. Guys/Gals,
In 2024, as you plan how to take profit and become CryptoRich!, don’t forget to strategize for TAXES.
Holding a token for over one year vs. less than a year can mean the difference between paying 15% or 30% to taxes…
Truly, I’dRatherPayLess,” wrote Hogan.
Long-term and Short Term Capital Gains and Losses
Back in 2014, the IRS issued a notice, classifying virtual currencies under property for Federal Income Tax and giving guidelines on how conventional tax principles relating to property also apply to virtual currency. Hogan cited the IRS (Internal Revenue Service) on how to determine if a virtual currency gain or loss is a long- or short-term capital gain or loss.
“If you held the virtual currency for one year or less before selling or exchanging the virtual currency, then you will have a short-term capital gain or loss. If you held the virtual currency for more than one year before selling or exchanging it, then you will have a long-term capital gain or loss,” said the IRS.
According to the IRS, the “ “holding period” begins on the day after you acquired the virtual currency and ends on the day you sell or exchange the virtual currency.” In essence, taxes are always applied whenever you sell or exchange a cryptocurrency, and your type and amount of tax will depend on how often you sell or exchange.
Pay Less Tax on Crypto If You Hold Longer
The crux of Hogan’s tweet on taxing was to remind crypto investors that your percentage tax depends on your tax bracket and the holding period. Hogan also highlighted a CoinLedger post on taxing in 2024.
“If you’ve disposed of cryptocurrency after less than 12 months of holding OR earned cryptocurrency income, you’ll need to pay ordinary income tax…”
“If you disposed of your cryptocurrency after more than 12 months of holding, you’ll be taxed at the long-term capital gains rate…”
Ordinary income tax paid by short-term holders ranges from 10% to 37%, which is way higher than the long-term capital gains tax of 0% to 20% paid by long term cryptocurrency holders.
Hogan went on to reinforce his major tweet with a reply to one of his X followers’ comments, exemplifying how short-term transactions increase taxes unlike holding consistently for the long term.
“I have seen some people say they’re selling XRP, buying another token and will buy XRP again after making some money in the other token.
Fair enough, but now you have given up your long-term tax status on XRP and given yourself two short-term tax rates. Just be aware…” added Hogan.