Source: https://www.linkedin.com/feed/update/urn%3Ali%3Ashare%3A6996931806188982273
The Wall Street Journal #Crypto #Losses as a #Tax-#Saving #Tool: Cryptocurrency investors may need to act within the next few weeks to reduce their tax bill: https://lnkd.in/denkMuzv: #IRS #Crypto #Tax #Saving #Tool #Cryptocurrency #Investors #Losses #Reduce #Tax #Bill #Accounting #Auditing #Taxes:
The rout in #cryptocurrencies worsened this week with the collapse of offshore #exchange #FTX. With #bitcoin recently down more than 60% in 2022, many #crypto #investors would surely like to forget about #digital #assets, at least for now.
That would be a mistake. The Internal Revenue Service hasn’t lost interest in #cryptocurrencies, and #investors need to focus on key #tax issues before year-end.
New #rules and #enforcement actions are coming to ferret out #crypto #transactions that often went unreported in the past. There’s a bit of good news as well: This year’s painful #selloff brings an opportunity for #crypto #holders to #harvest #losses to #offset #future #taxes.
Here’s more to help investors make smart crypto moves in the next few weeks—and get ready for new IRS scrutiny.
Crypto losses as a tax-saving tool
There’s a silver lining for investors whose crypto holdings are in #taxable #accounts rather than tax sheltered accounts such as IRAs.
The benefit is that if an investor sells this crypto and books a #capital #loss, it can be used to #offset #future #capital #gains on winners. These gains don’t have to be on #digital #assets; they could be on #stocks, #realestate, or other #investments.
If an investor with capital losses has no capital gains to shelter, the losses can offset up to $3,000 of ordinary income such as wages per tax return, per year. These losses don’t expire.
Say that John has a $20,000 loss in his #crypto #holdings now. If he sells and has no #capital #gains to offset, he can #reduce his #wage #income by $3,000 this year and in future years. If he then has a capital gain of $5,000 two years from now, he won’t owe #tax on it—and he’ll still have $9,000 to #offset #future #taxes.
In a key way, #crypto #losses have an #advantage over #stock #losses. If an investor sells shares at a loss, the “wash-sale” rules penalize him if he also buys the same #stock within 30 days before or after the #sale.
But the wash-sale rules don’t currently apply to cryptocurrencies. So #crypto #investors can have their cake and eat it too, by taking #losses now to shelter #future #gains and then repurchasing favorites right away.
New IRS reporting by brokers
The 2021 Infrastructure Investment and Jobs Act included a provision requiring crypto brokers to report customers’ sale proceeds to the IRS on a 1099 form, if it’s held in a taxable account. The requirements are akin to what brokerage firms…
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