The fall of the crypto market and the massive losses in the macro-environment of the crypto market mean a few things – but unexpectedly, they could also mean significant savings with tools like Ledgible.
If you’re like most people, you probably don’t think about taxes when you’re trading cryptocurrency. But the fact is, if you’re not careful, your crypto gains can end up costing you a lot more in taxes than they should. However, given the current market, you might find that you have a decent number of losses in your portfolio.
With crypto, you can tax loss harvest to save money on your tax bill, one of the many functionalities that Ledgible offers to users for free. One of the biggest benefits to crypto over traditional assets is that the wash sale rule doesn’t apply, meaning that you can buy back into crypto immediately after selling, and still claim that first loss, even though at the end of the day, you still own the same amount of crypto.
Understanding how to minimize crypto tax bill with Ledgible
Ultimately, you can minimize your tax bill (even your income tax bill) by using crypto losses to offset your gains. Here’s how it works:
If you have a capital gain from selling cryptocurrency or other assets, you can use any capital losses you’ve incurred to offset that gain and lower your tax bill.
For example, let’s say you bought 1 BTC for $10,000 and sold it later for $15,000, resulting in a $5,000 capital gain. If you also had a capital loss of $3,000 from selling another cryptocurrency, you could use that loss to offset the gain from BTC, resulting in a net gain of only $2,000.
But this can work even further to the extreme. Say you have no capital gains for the year, both in crypto and in traditional assets. That doesn’t mean you can’t benefit from tax loss harvesting your crypto. The IRS allows taxpayers to offset up to $3,000 in ordinary income with losses from crypto. Meaning that if you book up to a $3,000 loss on your digital assets come tax time, you won’t have to pay taxes on that much income!
Better yet, if you have a net loss of greater than $3,000 for any given year, you can carry that loss forward into future years to continue offsetting against your income or future capital gains.
This can be a valuable tool for minimizing your tax bill, especially if you have significant gains that you booked earlier in the year. So if you’re trading cryptocurrency, be sure to keep track of your losses as well as your gains, so you can use them to your advantage come tax time.
One of the best ways to keep track of all of this transaction data is by utilizing Ledgible to track your portfolio throughout the year, make tax loss harvesting decisions, and ultimately generate the tax forms you need to file your tax return.
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Disclaimer: This is a paid post and should not be treated as news/advice.