If you’ve had to sell your crypto at a loss this year, don’t despair. Instead, prepare your taxes strategically to make the most of your losses and get the most significant tax write-off possible. Here are details to keep in mind about crypto write-offs and how you can use them to save on taxes.
What are crypto write-offs?
In the US, a write-off is when you sell assets at a loss, which you then use as a tax deduction. The US still needs to roll out crypto-specific regulations. Much like Gary Gensler would like it, crypto assets currently appear like any other security on your tax forms. So, crypto write-offs work the same as any other securities write-off.
There are only two values that matter when it comes to securities: the price you buy at and the price you sell at. If you purchased at $50 and sold at $25, it doesn’t matter if your investment was worth $300 at one point. The end result is you have a realized loss of $25. When that happens, you can include those losses against your income gains when filing your taxes. With write-offs, you deduct however much you lose from securities investments from your gains. which means you’ll pay taxes on a lower number.
Why sell at a loss?
Ideally, you sell at a loss because you can afford to lose money on an investment to fall into a lower tax bracket. However, circumstances are rarely ideal, especially concerning finances in the US. Record inflation and rising interest rates have continued the financial hardships we’ve endured over the last three years.
In reality, most people who sold crypto at a loss did it out of necessity. Maybe bills needed paying, or people may have also sold to keep up with rising prices at the pump and grocery store. People might have even sold at a loss out of fear their crypto exchange would freeze their funds.
What are the benefits of crypto write-offs?
The benefit of a write-off is you don’t completely lose your investment’s value. Your investment itself may be gone, but you can write off the loss to hopefully pay less in taxes. It’s not a solution but a thin silver lining you can rescue from an undesired outcome. Considering the more you lost, the more you can write off, the situation is bound to be conflicting.
If you use a tax platform like TurboTax or H&R block, they will most likely offer the opportunity to synch your crypto wallet with their database to help with your taxes. Eventually, they will lead you to form 1040-D for your crypto accounts.