One mans’ problem is another man’s fortune. If you trade bitcoin, you can turn your bitcoin and crypto losses to offset other types of capital gains for tax purposes. Consequently, you can save enough cash. The US does not permit cryptocurrency trading, but this piece has addressed facts you need to be aware of your crypto taxes in the US.
Trades on Bitcoin and Losses on Crypto can offset other Capital Gains
When it comes to tax issues, selling cryptocurrency is treated the same as any other capital asset, for instance, bonds, property, stock, etc. This means at any given time you trade Bitcoin or any other crypto, you either realize a capital gain or capital loss.
A capital gain is when you sell your crypto for more than you purchased. Hence, you owe the IRS a certain percentage on the extra dollars you made.
On the other hand, when you suffer from a capital loss, it means you sold your crypto for less than you purchased. This says that you have suffered a loss which you can use to offset gains from other trades. If not, you can use your capital loss to gain from the sale of other property in your portfolio like stocks.
The trend in the crypto field isn’t fair to the majority of investors. There are plenty of losses being experienced. Thus, for any buyer to reduce taxable income and save money, filing capital losses is essential.
$3,000 Net Capital Losses can be deducted against Other Types of Income
Capital losses arise whenever your total capital gains and losses for the year add up to a negative figure. For instance, if your net capital loss is less than or equal to $3,000 or $1,500 if you are married and filing different tax returns, the whole capital loss can be used to pay off other types of income from your job.
Under a similar scenario, if the amount exceeds $3,000, the amount over $3,000 will be carried forward to the following year.
The Real Life Situation
For you to get a clear image of this, take a look at the example below:
Let’s say you started trading in crypto in 2017 and the business was good. You traded in Bitcoin and Ethereum and made $50,000. Once August rolled over, the markets took a drastic change for the worst. You couldn’t withstand the pressure, and your portfolio dropped. You sell all your assets and incur a loss of $7,000. At this point, at the end of the year, you will harvest a $2,000 loss. This, however, will be taxed from your taxable income for the year.
If you made an income of $50,000, with this margin of loss, $48,000 of the income would be taxable. By filing your losses properly, you could save a significant amount of money depending on how heavy your losses are- especially if you have other capital gains to offset from a traditional stock portfolio.
The Internal Revenue Service Form 8949
For more information on how to report crypto on your taxes, say each trade you make on IRS form 8949. This includes Sales and Disposition of other Capital Assets. For every business, you make during the year, record the amount of traded crypto, the price, and trade, the cost basis for the trade, and the capital gain or loss made. List every transaction from the year on this document and sum up the net losses at the bottom. The total should be equal to $2,000.
What if you made lots of Trade?
It can be a considerable headache to create form 8949 if you haven’t been keeping records of your trades. If you get engulfed in such a scenario, it would be grateful if you leverage crypto tax software to automatically create for you form 8949.
Be Cautious of Expensive Crypto Accountants
A lot of traders believe expensive crypto accountants are capable of handling the entire tax process. Still, they are the best in creating form 8949. Well, most of these CPA firms use similar automated crypto tax services to handle complex calculations. They end up charging customers millions of dollars.
You will save hundreds of dollars if you do crypto gains and losses calculations by yourself. After that, you can upload the document on sites like TurboTax or hand it over to your usual CPA. This is one way to dodge unnecessary and expensive equations from a crypto accountant.
Once you sum your capital gains and loss on form 8949, transfer the total figure onto your 1040schedule D.
If you have a loss in your trades, take advantage of them and save as much money as you can.
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Disclaimer: The authors of this website may have invested in crypto currencies themselves. They are not financial advisors and only express their opinions. Anyone considering investing in crypto currencies should be well informed about these high-risk assets.
Trading with financial products, especially with CFDs involves a high level of risk and is therefore not suitable for security-conscious investors. CFDs are complex instruments and carry a high risk of losing money quickly through leverage. Be aware that most private Investors lose money, if they decide to trade CFDs. Any type of trading and speculation in financial products that can produce an unusually high return is also associated with increased risk to lose money. Note that past gains are no guarantee of positive results in the future.