How Crypto Losses Can be Used to Offset Your 2024 Tax Bill

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As a seasoned investor and taxpayer who has navigated through various market cycles, I can confidently say that the current bull run in cryptocurrencies presents both opportunities and challenges. On one hand, the potential for substantial returns is enticing; on the other, the impending tax implications cannot be overlooked.

Currently, cryptocurrencies are experiencing an upswing, potentially offering substantial profits to investors by the end of 2024. However, it’s important to remember that such gains could mean a larger tax bill from the IRS in the future.

In terms of minimizing your tax burden, crypto losses can surprisingly work to your advantage. They can be utilized to balance out the profits you’ve made in other areas of your cryptocurrency portfolio. Given the promising future that could lie ahead for coins such as Solaxy ($SOLX), it’s wise to consider your tax situation well before things get even better.

Crypto Profits Are Taxable Profits

At present, meme coins are on an upward trend, with some notable examples such as Crypto All-Stars ($STARS), Wall Street Pepe ($WEPE), and CatSlap ($SLAP) leading the way. These coins offer attractive staking returns and potential price increases. However, it’s important to remember that a portion of any profits you may earn will be required by law to be paid to the government as taxes.

Starting from January 1st, the Internal Revenue Service (IRS) will be implementing significant modifications to the tax rules for cryptocurrency. Failing to plan ahead could result in you having to pay a larger portion of your crypto gains to the IRS than you initially anticipated. To ensure that your upcoming tax liabilities are manageable, it’s advisable to consider these changes and determine how to minimize them using any potential losses.

Absolutely, we’re not qualified to provide legal or accounting advice regarding taxes. However, we can offer some general suggestions that might help you. Remember, it’s crucial to verify all information with your accountant as everyone’s tax situation is unique. What works for one person may not work for another due to differences in tax liabilities.

So When Does Crypto Become Taxable?

Beginning with clarity, let’s understand that the Internal Revenue Service (IRS) classifies certain cryptocurrency transactions as taxable events. As per a Forbes article, you become liable for taxation when you experience gains from your cryptocurrency transactions.

  • Selling crypto for fiat
  • Trading one cryptocurrency for another
  • Spending crypto on goods or services
  • Earning crypto through staking, mining, or rewards
  • Receiving airdrops or hard forks

2024 saw you carrying out certain actions? In such cases, it’s advisable to consult with your accountant regarding the submission of a Form 8949 (for Schedule D), or Schedule 1, if applicable.

So, How Can Your Crypto Tax Bill Benefit From Losses?

It’s best to set aside around 25%-30% of your cryptocurrency profits for taxes. You might be able to reduce your tax liability by including your crypto losses in your tax return, which is legal. Remember, you must do this before December 31st to utilize it for your 2024 tax bill.

Tax loss harvesting refers to the strategy of utilizing investment losses to reduce your overall tax liability. This involves examining your portfolio for assets that are underperforming or showing a loss, selling them at a lower price than their original cost, and then reporting this loss to the Internal Revenue Service (IRS). The IRS may allow you to use this loss to offset gains in other investments, thereby decreasing your tax bill. In certain instances, these losses can also be carried forward to future tax years.

This all serves to illustrate that making losses can have a silver lining.

Don’t Take Our Word as Gospel – Consult an Accountant!

What we’ve outlined here are merely generalizations. You should always consult an accountant or a tax lawyer to make sure the rules apply to your current situation. Like investing in new crypto possibilities, always do your own research!

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2024-12-19 16:11