For almost any crypto trader that didn’t trade short 2018 was a terrible year, as virtually everyone saw losses across the board. Falling from all-time highs down to multi-year lows, crypto markets took a beating in 2018. So far, American crypto traders alone have recorded a whopping loss of $1.7 billion – a figure that makes even the most stalwart of crypto trader’s stomach churn. However, this massive figure could actually help the American people get a hefty break on their tax bill come tax season – take that Uncle Sam!
Stacks of Unrealized Losses
The figures come from a recent Credit Karma report, and that huge $1.7 billion is only the realized losses – meaning traders cashed out their crypto into fiat. It’s estimated that there is more than $5 billion in unrealized losses from the American crypto trading community – presumably traders hoping for a bull run to recover their positions. While these traders could be hoping to recover some money before they cash out, it could be wise to cash out a little bit and realize the losses simply for tax purposes.
How to Use Crypto Losses to Your Advantage
If you recorded a loss with your crypto investments – even if you bought something with crypto and the conversion was completed at a loss – then you can claim what’s called Capital Loss, the opposite of Capital Gains. Under these tax laws, you can deduct up to $3,000 in investment losses from your tax bill, a figure which could push your earnings from your day job into a lower tax bracket and earn you a nice tax rebate. Before it’s too late to hand in your tax return, consider taking a little loss on your crypto portfolio in order to reduce your tax bill – you owe it to yourself.
Tax Laws Coming into Effect
Around the globe, governments are scurrying to put tax laws for crypto activity in place before the end of the financial year. In the UK, Her Majesty’s Revenue and Customs (HMRC) has just dropped a raft of tax advice for people with crypto holdings. These new laws and advice notes outline what counts as a taxable activity, helping people to declare the correct amount come tax season. UK crypto traders can also use Capital Loss laws to reduce crypto losses from their tax bill.
Unfortunately, we aren’t tax professionals. If you’re not sure about how much tax you should be paying or declaring for your crypto activity, then it’s worth getting in touch with an accountant that knows their stuff. Alternatively, there are a handful of great apps out there – like Zenledger – that can help you calculate your crypto taxes. Whatever you do, make sure you pay the correct amount of tax, as governments around the world are starting to clamp down.