Press Release With the crypto market down nearly 50% in the past month and over 70% from its late 2021 highs, many crypto investors have been looking for the past few years for seeking answers after gains evaporated into the ether.
After the tremendous bull market crypto investors enjoyed in 2020 and 2021, you may now find yourself nursing losses instead of gains ahead of the coming tax season. Crypto tax platform Koinly shares five little-known tax hacks you need to know after the crypto crash.
1. Pay less tax by holding
Avoid paying taxes on crypto. While you can’t avoid tax liability altogether, there are quite a few ways you can There are several ways to optimize your 31} There are ways to optimize your tax position. But here’s the catch, you need to do it before the end of the fiscal year to pay less taxes overall.
You’ve probably heard it before, but the easiest way to pay less crypto taxes is simply HODL. In many jurisdictions, holding crypto investments (or other assets like stocks) for more than a year qualifies any gains as long-term capital gains. Depending on where you live, crypto sold in the first 12 months after purchase are.
- tax-free in Germany
- 50% discount on capital gains tax in Australia
- In the U.S., taxed at a lower rate of 0%, 15% or 20% depending on your annual personal income
2. Tax-exempt gains
A tax exemption on capital gains automatically reduces the amount of tax paid. In the UK, there is a CGT deduction of up to £12,300 before an individual pays taxes. Germany has a relatively low deduction of 600 euros, while Australia has no such deduction. In the U.S., the IRS does not impose capital gains tax on income below $40,400.
Knowing the maximum tax exemption for capital assets in your country will help you determine your crypto disposition strategy, so make sure you understand how crypto is taxed where you are.
- Offset your gains and losses with tax loss harvesting
Tax loss harvesting allows you to claim capital losses by recognizing and selling assets at a capital loss. These capital losses can be carried forward against future capital gains and can even be carried forward over multiple fiscal years.
For example, if you made $10,000 trading Bitcoin but lost $10,000 selling Ether, you would not have to pay taxes since you break even. This means that if you had a good year in stock trading, you could offset those gains with crypto losses.
However, if you have unrealized losses and do not crystallize them by selling before the end of the current fiscal year, you cannot take advantage of this capital loss until next year’s tax return.
Note that the wash sale rules prohibit selling an asset at a loss during the current fiscal year to create an artificial loss and then buying it back immediately thereafter. To avoid this, you can either exchange one crypto for another or sell and buy another crypto (sell ETH and buy USDC andBTC).
- Track cryptos to find opportunities
The IRS, HMRC, ATO and other tax authorities require investors to keep detailed records for at least 3-5 years. With equities, this may be easy, but with crypto, there are dozens of wallets, hundreds of blockchains, multiple exchanges, DeFi protocols, and NFT platforms that can cause headaches at tax time.
Use encrypted tax software like Crypto tax software like allows you to file crypto taxes in half the time, as well as track unrealized gains and losses on each asset throughout the fiscal year.
5. Choose the best cost accounting method
When calculating your crypto taxes – the costing method you use is important. It will determine which of your assets you sold and subsequently how much capital gain or loss you have.
FIFO tends to produce the highest gains, but may result in lower taxes if long-term CGT discounts apply in your country. On the other hand, LIFO (LIFO) usually produces the lowest profit, but the tax rate you pay may be higher because you pay short-term CGT.
Koinly supports both of the above costing methods (and more) – check your settings to see which accounting method will produce the lowest taxes. Talking to your accountant about your crypto taxes will help you navigate the confusion and make sure you are doing the right thing while optimizing your taxes.
About Koinly: Koinly will calculate crypto taxes for you and for investors and traders of all levels. Whether crypto, DeFi or NFT, this platform can save you valuable time by reconciling your holdings to generate compliant tax report within 20 minutes. Sign up
today and see how much you owe.
This is a press release. Readers should exercise their own due diligence before taking any action related to the advertised company or its affiliates or services. or for any damage or loss caused or alleged to be caused, directly or indirectly.
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