If you’re one of the many cryptocurrency investors, you may have losses to report. The factors that affect traditional paper money also affects digital currency and has led to significant losses for many.

If you own cryptocurrency, you should definitely report it on your federal tax return. The IRS requires it and views cryptocurrency as property rather than currency, per se. The good news is that you can claim your losses on your taxes – within limits.

Deduction

You can use your crypto losses as an income tax deduction up to $3,000. However, you won’t be able to do so if you had total capital gains across all your assets.

Capital Gains

It’s possible to lower or offset your capital gains, and future capital gains if carried forward, by claiming a loss on your crypto. A strategic selling off of assets at a loss is known as crypto tax loss harvesting and can offset your gains. You can also carry forward those losses to future tax returns.

You’ll use the same method to report crypto losses as you would crypto gains. Crypto isn’t considered a security, so selling it and buying it back within 10 days isn’t technically considered a crypto wash sale. However, you should consider safer ways to reduce capital gains.

Special Forms

The IRS requires special forms to report gains and losses from cryptocurrency. It can be difficult to quantify short-term and long-term losses and gains. The best solution is to seek the services of an accountant who is knowledgeable in tax laws concerning crypto and understands the exact forms to use.

Stolen Crypto

If you’ve been the victim of a crypto hack, you’re understandably upset and have little hope of recovering the lost currency. Unfortunately, the IRS views stolen crypto in the same way it does traditional dollars that have been stolen. Even though you can’t take a deduction for stolen crypto, its important to record it in your records so it’s not mistaken for a sale.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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Whether or not you pay taxes on your cryptocurrency holdings will rely on a variety of factors. Cryptocurrency is considered property by the IRS and is currently taxed in a similar way to stocks. However, if all you did was purchase digital currency with U.S. currency and it’s been sitting untouched in your wallet or an exchange, you may not need to report it.

Taxable Situations

You will need to report your cryptocurrency if you’ve traded one type of the digital currency for another or if you’ve sold cryptocurrency for government-issued currency known as fiat dollars. Similarly, the currency may be taxable if you’ve used it to purchase services or goods ranging from a cup of coffee to a new car.

Capital Gains

Using cryptocurrency doesn’t necessarily mean you’ll owe taxes on it, though you’ll need to report the transaction. Selling an asset such as cryptocurrency can be subject to a capital gains tax. Gains are taxed at either short or long-term rates. It will depend on when the digital currency was acquired and the date it was sold or disposed of, along with the amount you paid combined with any transaction fees.

Defer or Eliminate Taxes

You may be able to defer or completely eliminate, taxes on cryptocurrency holdings if you purchase inside an IRA, 401K or other retirement plan. Buying within a traditional IRA will defer taxes on the gains until you begin making distributions.

Hire a Professional

Cryptocurrency is still a gray area in the U.S. in many ways. It can be difficult and confusing to navigate the laws surrounding the digital currency. If your cryptocurrency history is complex, the expertise of a tax attorney can be invaluable when filing your yearly taxes. They can present you with strategies that are acceptable to the IRS for accounting for gains and losses.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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