PRESS RELEASE. With crypto markets down around 50% in the past month and more than 70% from their late 2021 highs, many crypto investors are looking for answers after their earnings of the past few years have faltered. evaporated in ether.
Following the incredible bull market, crypto investors enjoyed 2020 and 2021; you may now find yourself with losses rather than gains before the next tax season. Crypto tax platform Koinly shares 5 little-known tax hacks you need to know about after the crypto crash.
1. Pay less tax by owning
Want to avoid paying taxes on crypto? Although you cannot avoid your tax obligations entirely, there are many ways to to optimise your tax situation. But here’s the catch, you’ll have to do it before the end of the fiscal year to pay less tax overall.
You’ve probably heard it before, but the easiest way to pay less tax on cryptos is to just HODL. In many jurisdictions, holding your crypto investment (or other assets such as stocks) for more than a year qualifies any gain as a long-term capital gain. Depending on where you live, any crypto sold 12 months after purchase is:
- Tax exempt in Germany
- 50% reduction in Australian capital gains tax
- Taxed at lower tax rates of 0%, 15%, or 20% in the United States, depending on individual income during the year
2. Non-taxable earnings
Capital gains tax exemption thresholds can help you automatically owe less tax. In the UK, individuals receive a CGT allowance of up to £12,300 before paying tax. Germany has a relatively low threshold of €600, while Australians have no such allowance. If you are in the United States, the IRS states that any individual income below $40,400 pays no capital gains tax.
Knowing the tax-exempt maximum for fixed assets in your country is a great way to help you determine your crypto disposal strategy, so make sure you understand how crypto is taxed wherever you are.
- Offset your gains with losses by collecting tax losses
Tax loss harvesting allows you to claim capital losses by recognizing and selling your assets at a capital loss. These capital losses can be carried over to future capital gains and even over several financial years.
For example, if you made $10,000 after buying and selling Bitcoin but lost $10,000 after selling your Ether, you will not owe any taxes since you broke even. This also works if you had a good year trading stocks, you can offset those gains with crypto losses.
However, if you have an unrealized capital loss and you do not crystallize it by selling before the end of the current financial year, you will only be able to take advantage of this capital loss from the tax return of the Next year.
Beware of wash sale rules that prohibit selling assets at a loss to create an artificial loss this year and then buying them back immediately. To avoid this, you can trade one crypto for another cryptocurrency or sell and buy a different cryptocurrency (sell ETH for USDC then buy BTC).
- Track your crypto to spot opportunities
Tax offices including the IRS, HMRC and ATO require investors to keep detailed records for at least 3-5 years. With stocks it can be easy, but in crypto, with dozens of different wallets, hundreds of blockchains, multiple exchanges, DeFi protocols and NFT platforms, it can be a headache at tax time. .
Use crypto tax software like Koinly not only helps you file your crypto taxes in half the time, but it can also help you track your unrealized gains and losses for each asset throughout the fiscal year.
5. Choose the best cost basis method
When calculating your crypto taxes, the cost basis method you use is important. It dictates the assets you sold and the amount of your subsequent capital gain or loss.
First in, first out (FIFO) tends to produce the highest payouts, but can reduce your tax bill if a long-term CGT reduction applies in your country. Alternatively, last in, last out (LIFO) generally produces the lowest gains, but may increase the rate of tax you pay due to the payment of CGT in the short term.
Koinly supports both of the cost basis methods above (and more) – so check your settings to see which accounting method might produce the lowest tax liability. Talking to an accountant about your crypto taxes can be helpful to avoid confusion and ensure you are doing the right thing while optimizing your taxes.
About Koinly: Koinly calculates your taxes on cryptos for you, catering to investors and traders at all levels. Whether it’s Crypto, DeFi or NFT, the platform helps you save valuable time by reconciling your holdings to generate a compliant tax returnrt in less than 20 minutes. Register today and see how much you owe!
This is a press release. Readers should exercise due diligence before taking any action related to the promoted company or any of its affiliates or services. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in the press release.
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