When the prices of cryptocurrencies started to fall at the beginning of this year, many people were left holding onto digital assets that were worth a fraction of what they were once worth. If you’re among those who have suffered losses due to the crypto market crash, don’t worry – you can write them off on your taxes.
Cryptocurrencies had a banner year in 2017, with the total market cap for all digital currencies reaching nearly $800 billion by year-end. But 2018 has been a different story, with the total market cap dropping by more than 60% to its current level of around $275 billion. As investors have suffered losses, some are looking for ways to write off their crypto losses on their taxes.
Can you write off crypto losses?
The answer is yes, you can write off crypto losses on your taxes. But there are a few things you need to know in order to do so. First of all, you can only write off losses if you itemize your deductions on your tax return. This means that if you take the standard deduction, you won’t be able to write off any losses.
If you itemize your deductions, you can write off crypto losses as a capital loss. This is different from a regular loss, which is only deductible up to $3,000 per year. A capital loss can be carried forward indefinitely and used to offset future capital gains, or it can be used to offset up to $3,000 of ordinary income in a given year.
Understand the basics of crypto taxation
Before you start writing off your crypto losses, it’s important to understand the basics of how cryptocurrencies are taxed. Cryptocurrencies are considered property for tax purposes, which means they’re subject to capital gains taxes. This is true whether you sell cryptocurrency for fiat currency (like dollars or euros) or exchange it for another cryptocurrency.
If you hold cryptocurrency for more than a year before selling it, you’ll be subject to long-term capital gains taxes. These taxes are generally lower than short-term capital gains taxes, which apply to assets held for less than a year.
Find an accountant who understands digital currencies
While you can technically write off your crypto losses on your taxes, it’s not always a simple process. This is because the IRS has yet to release any guidance on how to properly report cryptocurrency gains and losses. As a result, there’s a lot of confusion about how to calculate and report gains and losses from digital currency transactions.
For this reason, it’s a good idea to work with an accountant or tax professional who understands digital currencies. They can help you calculate your gains and losses and ensure that you’re reporting them correctly on your tax return.
Keep meticulous records of your transactions
Another important thing to keep in mind is that you need to keep meticulous records of all your cryptocurrency transactions. This includes the date, time, amount, and type of each transaction. If you don’t have a record of your transactions, it will be very difficult to calculate your gains and losses.
While it may seem like a lot of work to keep track of all your cryptocurrency transactions, it’s important to do so if you want to maximize your tax deductions. So take the time to set up a system for tracking your transactions, and make sure you keep up with it on an ongoing basis.
Report any losses to the IRS
If you do have capital losses from your cryptocurrency investments, be sure to report them to the IRS. You can do this by filing Form 8949 with your tax return. This form is used to report capital gains and losses from the sale or exchange of property.
When you file Form 8949, you’ll need to include the date of each transaction, the proceeds from the sale, and the cost basis of the property sold. The cost basis is generally the price you paid for the cryptocurrency, plus any fees or commissions paid.
Why Do Companies Choose to Use Cryptocurrencies?
The pros and cons of using cryptocurrency in online casinos
Crypto casino security: How blockchain technology keeps your funds safe