PRESS RELEASE. With crypto markets down around 50% in the past month and over 70% from their highs in late 2021, many crypto investors are searching for answers after their profits from the last few years have evaporated into the ether.
Following the incredible bull market, crypto investors enjoyed over 2020 and 2021; you may now find yourself nursing losses rather than gains ahead of the upcoming tax season. Crypto tax platform Koinly shares 5 little-known tax hacks you need to know after the crypto crash.
1. Pay less tax by holding
Want to avoid paying tax on crypto? While you can’t dodge your tax obligations entirely – there are quite a few ways you can optimize your tax position. But here’s the catch, you’ll need to do it before the end of the financial year to pay less tax overall.
You’ve probably heard it before, but the easiest way to pay less crypto tax is to simply HODL. In many jurisdictions, holding your crypto investment (or other assets like shares) for longer than one year qualifies any gains as long-term capital gains. Depending on where you live, any crypto sold 12 months after purchasing is:
Tax-loss harvesting allows you to claim capital losses by recognising and selling your assets at a capital loss. These capital losses may be carried forward against future capital gains and even over multiple financial years.
For example, if you made $10,000 after buying and selling Bitcoin but lost $10,000 after selling your Ether, you won’t owe any tax since you broke even. This also works if you’ve had a good year in share trading, you can offset those gains with crypto losses.
However, if you have an unrealized loss and do not crystallize it by selling before the end of the current financial year, you won’t be able to take advantage of this capital loss until next year’s tax return.
Be careful of wash sales rules which prohibit selling assets at a loss to create an artificial loss this financial year, then immediately repurchasing them. To avoid this, you can swap one crypto for another cryptocurrency or sell and buy a different cryptocurrency (sell ETH for USDC and then buy BTC).
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