Although it might seem counterintuitive, crypto losses can technically help you save money.
The IRS treats cryptocurrencies as property rather than currency and investors incur standard capital gains and losses on their trades.
The IRS permits taxpayers to use losses in crypto investments, as well as stocks and other investments, to offset gains. Not only can you use crypto losses to fully offset any gains you might have made in stocks or other trades, but if you lose more than you gain in a year, you can deduct up to $3,000 against your taxable income. If you lose more than $3,000, it can even be carried forward every year until you die to offset gains in future years. Long story short, crypto losses don’t have to be all bad, they can be put to work for you.
All of this said, you do have to sell the cryptocurrency to take the capital loss — even if its value has dropped on paper.
The ability to use losses to offset gains is something crypto investors might want to consider taking advantage of now that the market has entered what’s known in the industry as a crypto winter.
Crypto winter is when prices contract and remain low for an extended period. High inflation has caused the Federal Reserve to raise interest rates, which arguably has a big impact on crypto.
The crypto market has declined 50% since last November, falling from $3 trillion to less than $1 trillion in June, according to data site CoinMarket Cap.
Crypto winters usually start when there’s a big selloff from the all-time high in the price of Bitcoin (CRYPTO: BTC), which hit a 52-week high of $68,990 last November before nosediving.
Crypto Complicates Taxes Crypto is relatively complicated, so it can be helpful to have software to track transactions. Although everything is recorded on the blockchain, extracting data for accounting purposes can be difficult.
Consumers,accountants and tax professionals can turn to services like Ledgible for help
Atlanta-based Ledgible, which reports that it integrates with QuickBooks, Xero Ltd. (OTCMKTS: XROLF) and every other tax or accounting software, provides Ledgible crypto data across the tax and accounting space, for professionals, consumers, and even leading institutional partners like FIS (NYSE: FIS).
The company’s professional tax software is designed for the professional market, including accounting firms, certified public accountants (CPAs), tax preparers and the customers who use these services.
Ledgible says forms can connect their clients’ portfolios and automatically calculate the gains and losses to properly report crypto transactions.
Its accounting software serves enterprises, companies that hold crypto, and banks and institutions that handle crypto. The Ledgible Crypto Enterprise Accounting application is meant to streamline cryptocurrency and digital asset accounting operations for enterprises and institutions, making them legible.
Learn more about Ledgible here.
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