Tax Tip: How to Turn Your Crypto Losses Into Tax Savings

Tax Tip: How to turn your crypto losses into savings

*Please note the following information is provided by CoinTracking and should not be considered the advice or opinion of Cred.  Cred does not provide tax advice and does not endorse any provider of tax advice.

If you bought Bitcoin and other cryptos when their prices were high and were forced to sell for a loss, there’s a silver lining: these losses could place you in a lower tax bracket. What’s more, claiming those losses is easier than you might assume.

Read on to find out everything you need to know about how to file your crypto losses.

Filing Your Crypto Taxes 101: How Does it Work?

For the purposes of taxation, the US and most other governments consider cryptocurrencies to be assets. This means that whenever you trade cryptocurrency, the transaction falls into one of two categories: a capital gain or a capital loss. 

  • Capital gain. A capital gain occurs when you sell cryptocurrency for more than the amount that you paid to purchase it.
  • Capital loss. If you sell cryptocurrency for less than the amount that you paid for it, this is considered to be a capital loss.

You have to sell or buy an asset to trigger a taxable gain or loss. Once you decide to make a move, tax authorities consider the loss to be “realized.” If your loss is great enough, you may be able to use it to enter a lower tax bracket.

Deducting Your Crypto Losses 

One of the biggest benefits of claiming a loss is that you can offset income gained from other sources.

In the US, the IRS lets you deduct up to $3,000 worth of net capital losses each year from the amount of money you’ve earned at your day job. If the amount you lost was greater than $3,000, you can get another deduction of up to $3,000 when you file your taxes next year.  

If you currently make just over $50,000 per year at your job, that $3,000 cryptocurrency loss could place you in a lower tax bracket. This could result in significant tax savings.

What’s more, if you’ve earned some income through stocks or through the sale of property, there’s no limit to the amount you can deduct from those revenues.

Here’s Where It Gets Complicated…

Figuring out how much you’ve made or lost can be a headache, particularly if you haven’t been keeping track of your purchases or if you placed a huge amount of trade orders last year. Fortunately, there is software available that can crunch all your crypto tax data for you. 

The tool depicted below, called CoinTracking.info, can import your transactions from all your cryptocurrency wallets and exchanges. The interface walks you through how to do the imports. 

At the end of the import process, you can download IRS form 8949. This is the form you need to submit to report your loss. 

Other download options include CSV, TaxACT and TurboTax.

Conclusion

If you lost money in crypto markets, you may be able to offset some– or perhaps even all– of those losses at tax time. Reporting your capital losses might help you move to a lower tax bracket. If your deductions qualify you for a lower bracket, filing them could save you thousands of dollars when you submit. Visit CoinTracking.info for more information.


 

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