Hello Hive Fam!
What is tax-loss harvesting and how does it work?
Figuring out cryptocurrency taxes can not only be confusing but also kind of overwhelming. Now a lot of us probably aren’t thinking about taxes too much in December, but there may actually be things you can do before year-end to help reduce your tax obligations or even increase your 2020 tax refund… and that’s called tax-loss harvesting.
I’m no tax expert, but I was curious to learn about this and so I’ve teamed up with my friends at TaxBit and worked with their tax attorneys and CPA’s to get a little more information on how this all works and how to better optimize your taxes.
Tax-loss harvesting is essentially the process of strategically selling assets that are currently in loss positions to lower your overall capital gains. It is beneficial to realize losses towards the end of the year in order to receive the tax benefits on your next tax filing. As a reminder, you only trigger taxable events when you sell, trade, or spend your crypto. But, even if you’ve just been buying and hodling - you actually may still have some tax-loss harvesting opportunities. You may be able to leverage losses to increase your tax refund or even offset gains you have from other investments like stocks.
So lets’ walk through a scenario of how tax-loss harvesting works. Let’s say you currently have 1,000 dollars in realized capital gains for the year… but you also currently hold let’s say, a particular crypto with $2,000 of unrealized losses. If you just hang onto that crypto and don’t make any changes - you’ll be on the hook for the full 1,000 dollars in capital gains. However, if you sell the crypto and realize the loss - you will have net capital losses of 1,000 dollars. Rather than owing money to the IRS, by realizing the loss, you will be entitled to an increased tax refund by being eligible for the capital loss deduction.
So where and how do you get started with figuring this all out. Many of us probably use several different exchanges and wallets and so pulling all this data together can be overwhelming. Trying to figure this all out on your own can be very, very difficult, and so a tax software like Taxbit just makes it super simple by automating the process to make sure everything is being calculated, reported, and filed correctly. Their tax optimizer will show you the optimal amount of cryptocurrency to sell in order to maximize your losses, which in turn can increase your tax refund.
I”m excited to keep work with Taxbit’s CPA’s and tax attorneys to make more educational content about crypto and taxes throughout this next tax season, but I wanted to start with this video because I know tax loss harvesting is something a lot of us have questions on and is something that’s kind of time-sensitive to look into between now and the end of the year. If you have any questions at all, leave them below and maybe I’ll be able to address them in a future video. Thanks, guys and stay tuned for more educational crypto tax content coming soon.
XO, Lea
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