Bitcoin and crypto losses can be used to offset other types of capital gains for tax purposes. This article discusses how to handle your losses and the important things that you need to keep in mind for your crypto taxes.
For tax purposes in the U.S., selling crypto is treated the same as selling any other type of capital asset—stocks, bonds, property etc. This means that you realize a capital gains or capital losses anytime you sell Bitcoin or any other cryptocurrency. When you realize a capital gain (you sold your crypto for more than you purchased it for), you owe a tax on the dollar amount of the gain. However, when you sell (or trade) your crypto for less than you purchased it for, you incur a capital loss, and you can use this loss to offset gains from other trades or even a gain from the sale of other property like stocks in your portfolio.
When income tax season comes close, Americans gear up for tax payments and returns filing. It is also the time to start the work for maintaining fresh records for the next financial year. Amid all the developments, participants who have dealt in cryptocurrencies like bitcoins are a worried lot.
In 2017, the Internal Revenue Service (IRS) ordered the Coinbase cryptocurrency exchange to hand over all the necessary data related to the transactions made by more than 14,000 of its customers who bought, sold, received, or sent more than $20,000 worth of bitcoins (BTC) between 2013 and 2015. Those who suspected then that Uncle Sam was prepared to scrutinize and levy the necessary taxes, and penalties, on bitcoin dealings, were correct.
Bitcoin investors may want to forget 2018.
First, they should file their taxes.
“[Last year] was essentially a blood bath for most crypto investors,” said Tyson Cross, a tax attorney in Reno, Nevada.
The digital coin began last year trading at around $15,000, compared with $3,400 today.
Still, only around half of bitcoin investors plan to report their losses to the IRS, according to a survey of some 1,000 people conducted in November by personal finance company Credit Karma.
Their reasons for staying quiet? Not knowing if they can deduct their losses, or believing they don’t have to.
Perhaps more important: Others could be skittish to report their losses if they never shared their gains with the IRS, said Selva Ozelli, a CPA and tax lawyer.
“Taxpayers didn’t [used to] report their Swiss bank accounts,” Ozelli said.
Crypto is a volatile market, and many crypto traders have experienced losses during bear market cycles. Luckily, there are major advantages to reporting your crypto taxes even if you had a loss. Because digital currencies are treated as property, you report cryptocurrency tax whether you had a gain or loss. and in many other countries, it’s important that you report your crypto taxes even if you had a loss. Your capital gain or loss is reported on the Form 8949 and 1040 Schedule D.
To calculate your total losses, first you net your total long term gains and losses together, and you then net your total short term gains and losses together. Finally, net the long term gain/loss and short term gain/loss together to get your total capital gains or losses.
When filing your tax return, you have a few options if you have a loss.
The IRS says I need to report my cryptocurrency taxes…, but I had net taxable losses? TaxBit has frequently heard this sentiment from its users. Although losing money on your crypto trades is a major bummer, TaxBit can help you receive some relief in the form of an increased tax refund. With wild price swings and volatile coins, most crypto traders lived through the unfortunate reality of losing money on their trades over the course of at least one taxable year. Fortunately, the IRS allows taxpayers to claim deductions on their cryptocurrency capital losses. TaxBit’s cryptocurrency tax experts stand ready to help you claim the cryptocurrency capital loss deduction now, as well as carry excess losses into the future to offset future years’ gains.
In 2014, the IRS issued Notice 2014-21, clarifying that virtual currency is treated as property for tax purposes.
On October 31, 2008, the person (or persons) going by the name of Satoshi Nakamoto first posted the paper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Within months, the first Bitcoin had been “mined” setting off a technological and cultural revolution. And over the next decade, Bitcoin and other cryptocurrencies would see a dramatic rise in distribution and price, culminating in an epic 2017 that saw the value of many cryptocurrencies grow by more than 1,000%!
Unfortunately, just as public infatuation with cryptocurrencies seemed to reach a peak, so did its price, leading to a disastrous 2018.
First you said recently.
If it was 2018, you can’t take any losses till next year when you file a 2018 return. Currently, we are processing returns for activity in 2017.
Cryptocurrency is considered property by the IRS and every move
within the tax year is a recordable transaction. Cryptocurrency
held for investment has a gain/loss.
My crypto currency wallet was hacked and emptied out.
I want to report it as a loss on my tax return.
This answer will point you to clarify the different types of cryptocurrency thefts, whether it’s a capital loss or a theft depending on the circumstances.
Understand that this is a complex subject and in a state of flux as is the bitcoin phenomenon.
This answer culls portions of a blog that apply to you.
I suggest further research for you to determine where your situation lies.
“Generally, for U.S.