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So I have recently gone into investing crypto and have made good money on it. However I recently started thinking about the taxes on my investments. I'm not a day trader but I do sell and buy the same crypto frequently making $20-$30 each time I do so. While I have made good money doing this I don't know how it will be taxed.

So if I hypothetically purchased crypto at $20 and then sold it when it was valued at $300 and then bought the same amount back when it was $280 I would have theoretically made $280 from the first investment but then I would buy back the same share at $280 making $20. Would I be taxed on the $20 or on the $280. What if I sold that crypto again at $350 and bought it back at $310. How would the capital gains be drawn and am I not making as much as if I just waited for it to go straight from $20 to $350.

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    Tax questions require a country tag because the rules vary by jurisdiction. Where are you? (The question will be reopened once this detail is added) May 13 at 23:53
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People ask how to minimize taxes all the time. The best way to minimize taxes is to make less money!

  • Buy 20 -> Sell 300: Gross Profit 280, tax 280*(rate)
  • Buy 280 -> Sell 350: Gross Profit 70, tax 70*(rate)
  • Total: Gross Profit 350, tax 350*(rate); if rate is 0.22 then 350*0.22=77 for net profit of 273.00

Versus

  • Buy 20 -> Sell 350: Profit 330, tax 330*(rate); if rate is 0.22 then tax is 72.60 for net profit of 257.40

Yes, you'd be better off tax-wise with the second strategy, but you're better off profit-wise the first way. Your final buy has no implications on tax until you sell.

We have lots of good questions on the subject of cryptocurrency taxation, look around at those.

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So if I hypothetically purchased crypto at $20 and then sold it when it was valued at $300 and then bought the same amount back when it was $280 I would have theoretically made $280 from the first investment but then I would buy back the same share at $280 making $20. Would I be taxed on the $20 or on the $280.

Your realized gain was $280, which you'd be taxed on.

What if I sold that crypto again at $350 and bought it back at $310.

If the crypto you sold at $350 was the one you bought at $280 then you'd be taxed on $70.

How would the capital gains be drawn

It depends on if your broker withholds taxes from your trade (I suspect that crypto brokers do not, but I have no firsthand experience). If they don't, then you should set aside about 25% of your gains to be used to pay estimated taxes in the quarter in which they're earned. Otherwise, you may have to pay a penalty for not paying enough tax when you file.

am I not making as much as if I just waited for it to go straight from $20 to $350.

You're actually paying more because you bought back in at a lower price than if you had held it. You "made" another $20 by selling at $300 and buying back in at $280.

I'd recommend talking to a local CPA that has experience with Crypto if you plan on making this a regular source of income.

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