Reporting cryptocurrencies when filing taxes can help investors recoup their losses.

2022 was a tough year for the crypto market. A recent report by security services platform Imunefi found that the crypto industry could lose a total of $3.9 billion in 2022.

Harmful losses like these concern mostly cryptocurrency investors, although there may be a critical line behind the reduction in assets that investors report in crypto for their taxes.

Lisa Greene-Lewis, a certified public accountant at TurboTax, told Cointelegraph that while crypto investors made huge gains in 2021, that changed drastically in 2022. She said. According to Green-Lewis, tax loss harvesting is the most important thing to consider when it comes to saving money on tax filing. He said:

“With crypto, you can offset gains with losses. Other losses are offset against ordinary income, such as wages, up to $3,000. Losses greater than $3,000 can be carried forward to the next tax year.
Green-Lewis explained that awareness of tax loss harvesting is becoming more important as new, younger investors enter the crypto market. According to a Pew Research Center survey cited in TurboTax’s latest tax trends report, 16% of Americans have invested, traded, or used cryptocurrencies. People between the ages of 25 and 34 are more likely to have cryptocurrency sales transactions than other age groups. “A lot of these people don’t know about tax loss harvesting,” Green-Lewis said.

As the 2022 tax loss selling deadline has passed on December 30, Green-Lewis reiterated that crypto investors can still do so.

Steven Lubka, vice president of Swan Global Wealth – the private client services arm of Swan Bitcoin – also told Cointelegraph that tax loss harvesting is a viable option for Bitcoin.

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“It’s probably the most viable tax strategy. Swan Global Wealth works with private clients to provide valuable market insights, but most people don’t know that tax loss harvesting is an option,” he said.

Lubka further pointed out that tax loss harvesting is beneficial as no “wash sale rule” currently applies to cryptocurrencies, preventing a tax benefit if an investor buys the same asset 30 calendar days before or after the sale. “This means crypto investors can sell their assets and buy them back immediately when they lock in their tax loss.” While this is certainly positive, Lubka believes that this process will change in the future.

Donating to charity is another way for crypto investors to reduce their taxable income, which can be a good strategy during bull markets. Alex Wilson, co-founder of cryptocurrency donation platform The Giving Block, told Cointelegraph that donating cryptocurrency is tax efficient because it allows investors to avoid capital gains tax. he said:

“If an investor buys a bitcoin for $1 and sells it at the current market price, it is usually taxed. But if you donate Bitcoin to a non-profit organization, it’s tax-deductible. These deductions are even greater when you donate to a 501(c)(3) charity.
Wilson shared that The Giving Block has seen an increase in crypto donations over the past year, especially as investors become more aware of the benefits. “I expect this year to be a big one for donations because crypto is already on the rise,” he said, adding that non-fungible token (NFT) philanthropy is gaining momentum. “Giving Block has almost 30% of its donations from NFTs.” According to Wilson, NFT donations work similarly to crypto donations.

Individual Retirement Accounts, or IRAs, are another way for crypto investors to reduce their taxable income. Like a 401(k), assets held in traditional IRAs are tax-deferred, meaning investors don’t have to pay income taxes until the assets are distributed.

Lubka noted that crypto-focused IRA options are on the rise amid recent controversy over US citizens using funds in IRAs to buy digital assets.

Source: CoinTelegraph