How to deal with cryptocurrency losses on your 2022 tax return
The deteriorating macroeconomic climate and the collapse of industry giants such as FTX and Terra have weighed on the price of bitcoin this year.
PAGE | Nurphoto via Getty Images
Cryptocurrency losses can offset investment gains
One of the advantages of sharply falling assets is the ability to use collecting tax losses or using losses to offset profits.
If you sold a cryptocurrency at a loss, you can deduct that amount from another portfolio’s profit, and when the loss exceeds the profit, you can cut up to $3,000 from regular income, explained Lisa Green-Lewis, a certified public accountant and tax expert at TurboTax.
In addition, there is currently no “dummy sale rule” for cryptocurrencies. The rule blocks tax credits if you buy a “virtually identical” asset 30 days before or after the sale.
You calculate your loss by subtracting the selling price from the original purchase price, known as the “basis”, and reporting the loss to Planned and Form 8949 on your tax return.
According to Green-Lewis, if your crypto losses exceed other investment returns and $3,000 of regular income, you can use the rest in subsequent years. But it’s easy to lose track of loss carry forward and miss out on future opportunities to cut taxes, she warned.
“Wait and see” before filing for bankruptcy
CPA and tax attorney Andrew Gordon, president of Gordon Law Group, said there are typically two concerns: a possible loss claim for missing deposits, and a reported fee or interest income.
It may make sense to apply for an extension if you have significant holdings on any of these platforms to see if there is further clarity.
Andrew Gordon
Law Group President Gordon
In some cases, you may be able to claim damages or deduct bad debts and write off what you spent on the asset. But it would have to be a “total loss” to claim it, Gordon said. If you’re done getting, say 10% back after deducting bad debts, that 10% becomes regular income.
While there are several options for 2022, he usually tells customers to “wait and see” what happens. “It might make sense to apply for an extension if you have significant holdings on any of these platforms to see if there is further clarity,” he said.
You must report cryptocurrency even if you don’t receive tax forms
As of 2019, the IRS includes a “yes or no” question about cryptocurrencies on the front page of a tax return. The agency also traced client records by sending court orders to several exchanges.
“The IRS has taxpayer information for the last five years,” Losey said, so if they find out you have crypto and you haven’t reported, you could be targeted, he said.
Source link
