Top 5 tips for US crypto tax

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Sam Adams
Written by
Samantha Adams
Head of Content

The IRS are leading the way across the globe in the regulation of cryptocurrency tax and it is becoming unavoidable for US investors. Here’s a couple of tips worth considering that might make it a little less annoying...

1. Cut your losses

Watching that line go down and down can be soul destroying, but rather than cry over your losses, use them to your advantage! Did you know that you can declare your losses and use them to offset other (even non-crypto) capital gains?

Following that, if your losses are higher than your gains you can even use the remainder against your ordinary income – up to $3,000 per year.

If you’ve had a really bad year you can even carry over any remaining losses to the following tax year… bonus - kind of.

2. Trading fees – fully tax deductible!

Trading fees are often unavoidable, but the good news is they can be deducted when calculating your gains/losses. There’s not much guidance from the IRS on this yet but best practice is to assume that any cost relating to the acquisition or disposal of a cryptoasset is allowable, so trading fees – yes, but transfer fees - no.

3. Tax loss harvesting

The IRS class cryptocurrency as property so when calculating gain/loss you are not restricted by the Wash Sale Rule that applies to stocks and shares. This means that if you purchase a cryptocurrency that has since nose-dived in value then you can strategically sell it to realize your losses and then buy it back straight away to offset your gains. Sneaky you say?!.. but currently legal!

Just don’t forget the tax year runs January 1st to December 31st – so you might be out of time for this year, but its a tip worth remembering for future!

Plan and manage your crypto tax as well as you do your investments and you might actually smile about it.

4. Take responsibility

What would happen if your exchange collapsed? You can’t rely on them to hang on to all of your data for ever, so make sure you regularly download a copy and keep it somewhere safe.

Similarly, don’t assume receiving a 1099-K from your exchange means they’ve done the crypto tax work for you. Yes, they also send a copy of your 1099-K to the IRS, but this is just to inform them that you are a high transaction user, you must actually report your crypto taxes in detail yourself.

Ultimately, the IRS holds you responsible for reporting your income and transactions and you could face penalties or interest on tax owed if caught out.

5. Keep records of everything!

And that means absolutely everything! If organization is not your strong point use a tool like Recap to do it for you instead!

Recap allows you to connect accounts from the most popular exchanges in real-time, import CSVs and manually add transactions. We generate the tax documents you need in seconds and keep all of your data together so you can stay on top of your whole crypto portfolio in one place.