5 Year-End Tax Moves to Make in Q4 for Your Crypto Portfolio

As the end of the year approaches, the December 31st deadline looms large for savvy crypto investors in California. The final quarter is a critical window to make strategic decisions that can significantly reduce your tax liability for the year. With the IRS increasing its focus on digital assets and new reporting rules on the horizon, proactive tax planning is no longer optional—it’s essential.

Navigating the complexities of crypto taxation can be daunting. From tracking cost basis across multiple exchanges to understanding the tax implications of DeFi and NFTs, it’s easy to feel overwhelmed. However, by taking a few calculated steps now, you can position your portfolio for maximum tax efficiency.

As a leading tax law firm with deep expertise in digital assets, we’ve guided countless investors through their year-end planning. Here are five essential tax moves every crypto holder in California should consider making before the clock strikes midnight on New Year’s Eve.

1. Harvest Your Losses to Offset Gains

Tax-loss harvesting is one of the most powerful tools in an investor’s arsenal. This strategy involves selling crypto assets at a loss to offset capital gains you’ve realized from other transactions.

Here’s how it works:

• Offset Gains: Capital losses are first used to offset capital gains. Short-term losses offset short-term gains, and long-term losses offset long-term gains. Any remaining losses can then be used to offset gains of the other type.
• Deduct from Ordinary Income: If your total capital losses exceed your total capital gains, you can use up to $3,000 of the excess loss to reduce your ordinary income (like your salary) for the year.
• Carry Losses Forward: Any remaining losses beyond the $3,000 limit can be carried forward to future tax years to offset gains then.

Unlike stocks, cryptocurrency is currently not subject to the “wash sale rule,” which prevents investors from claiming a loss if they repurchase the same or a “substantially identical” security within 30 days. While this provides more flexibility, it’s a regulatory gray area. A conservative approach—waiting 31 days before repurchasing the same asset—is often wise.

2. Review Your Holding Periods to Secure Long-Term Gains

The timing of your sales is critical. The tax rate you pay depends heavily on whether your gain is classified as short-term or long-term.

• Short-Term Capital Gains: If you hold an asset for one year or less before selling, your profit is taxed at your ordinary income tax rate, which can be as high as 37% federally, plus California state taxes.
• Long-Term Capital Gains: If you hold an asset for more than one year, your profit is taxed at the more favorable long-term capital gains rates of 0%, 15%, or 20%, depending on your income level.

Year-End Action: Review your portfolio for assets nearing the one-year holding mark. If you have an appreciated asset you’ve held for 11 months, waiting just a few more weeks to sell could cut your federal tax bill on that gain nearly in half.

3. Gift or Donate Appreciated Crypto for a Double Tax Benefit

If you are charitably inclined, donating cryptocurrency can be one of the most tax-efficient moves you can make.

When you donate appreciated crypto that you’ve held for more than a year to a qualified charity, you can potentially receive two significant tax benefits:

1. You may be eligible for a tax deduction equal to the fair market value of the crypto at the time of the donation.
2. You avoid paying capital gains tax on the appreciated value of the asset.

Similarly, you can gift crypto to friends or family. For 2025, you can gift up to $19,000 per person without triggering gift tax requirements. This can be a strategic way to transfer assets to family members who may be in a lower tax bracket.

4. Get Your Transaction Records in Order Now

Starting in 2025, crypto exchanges will be required to issue Form 1099-DA to report customer transactions to the IRS. This means IRS visibility into your crypto activity will be greater than ever.

Don’t wait until April to sort through a year’s worth of trades. Use Q4 to:

• Download Transaction Histories: Pull CSV files from every exchange you’ve used (Coinbase, Kraken, etc.).
• Track Wallet-to-Wallet Transfers: Document transfers between your own wallets, as these are non-taxable events but still need to be accounted for to maintain an accurate cost basis.
• Use Crypto Tax Software: Tools like CoinLedger or Koinly can help aggregate your data and prepare it for tax reporting on Form 8949.

Having clean, comprehensive records is your best defense against errors, discrepancies, and potential IRS notices.

5. Consult with a Crypto Tax Professional

This is the most important move of all. The world of digital assets is complex and constantly evolving. The tax implications of staking rewards, DeFi lending, NFT minting, and airdrops require specialized knowledge that goes beyond standard tax preparation.

A qualified crypto tax attorney can help you:

• Ensure you are in full compliance with federal and California tax laws.
• Identify nuanced tax-saving opportunities specific to your portfolio.
• Strategize the most tax-efficient way to manage your assets moving forward.
• Represent you in the event of an IRS audit or inquiry.

Don’t Navigate Crypto Taxes Alone

The end of the year is your final opportunity to make a tangible impact on your 2025 tax bill. By taking these proactive steps, you can ensure you aren’t leaving money on the table or exposing yourself to unnecessary risk.

If you have questions about your crypto portfolio or want to develop a personalized year-end tax strategy, contact our firm today. Our team of experienced crypto tax attorneys and accountants is here to provide the clarity and confidence you need to navigate the digital asset landscape successfully.