Start the New Year Right with This Crypto Tax Opportunity

By Nilus Mattive

The stunning — and swift — collapse of major centralized crypto exchange FTX last month has many investors worrying about the safety and security of their crypto holdings.

This event sent many crypto assets deeper into the red and almost certainly accelerated additional industry regulation in the U.S.

More regulation will likely bring more investors into the crypto fold. This should also bring more clarity into how to report crypto taxes to the IRS.

In the meantime, there's one silver lining for those with crypto tax anxiety …

Now is the perfect time to consider a smart tax move that could make a huge difference in how much money you make from crypto going forward.

This move is an absolute no-brainer that every single crypto investor should consider before Dec. 31, and you should jump on this opportunity immediately …

Consider Selling Your Crypto Before Year-End

Many investors are familiar with the idea of tax-loss harvesting.

The short explanation is that you sell underwater positions to lock in the losses.

Ideally, you do this before the end of a given calendar year so you can use the losses when you file your taxes by the following April.

Since the Internal Revenue Service allows you to use your losses to offset investment gains on a dollar-for-dollar basis, this strategy can give you a nice tax break.

Better yet, you can use any excess losses — up to a $3,000 annual limit — to offset regular income.

And any unused losses can be carried forward for future tax years, too.

Some people will even sell underwater positions they want to continue holding for the long term just to get the tax benefit.

The only catch? The IRS has a wash sale rule that says you have to wait a full 30 calendar days before you can buy back the same (or even a "substantially identical") security for the loss to count for tax purposes.

Now, here's the cool thing: You'll notice the word "security" was used.

Since cryptos are considered property and not securities, the wash sale rule doesn't currently apply to them.

That means you can sell any crypto you own before Dec. 31, lock in any paper losses you might currently have and then immediately buy back the same crypto without triggering the wash sale rule.

For relatively minor transactional costs, you can get a huge tax break that can be used for 2022 and beyond without losing ownership of your investments for more than a little while.

Given the losses we've seen in the markets this year, taking advantage of this loophole right now is a no-brainer … especially since there's no guarantee it will remain in place going forward.

In fact, the Build Back Better Act recently tried to change this, but it was defeated in the Senate.

Besides, crypto could come roaring back in 2023, and this opportunity might not be a sensible option next year.

So, strike now while the iron is hot.

Use Today's Idea for a Powerful Tax Punch

While it might be tempting to jump headfirst into this exciting opportunity, please keep in mind tax is an incredibly complex topic.

Before you take any action, it would be advisable to speak with an accountant and/or other financial professional about your personal situation and financial goals to determine whether this strategy makes sense for you from a tax and financial planning perspective.

As always, it pays to do further research ahead of time. You don't want to find yourself in hot water with Uncle Sam.

However, there's no denying the massive financial benefit involved here.

Even if you simply book some losses on your current crypto positions and then buy them right back, the tax savings could be substantial.

That's why we recommend looking into this further before crypto experiences its next big bull market run … or lawmakers change your ability to take full advantage of everything we discussed today.

Best,

Nilus Mattive
Co-Editor, Weiss Crypto Investor

P.S. At Weiss Crypto Ratings, we believe in the long-term potential of cryptocurrencies. So, be sure to hold on to your favorite cryptos for the foreseeable future. This tax-loss strategy only applies to positions you want to part with. If you're looking for what cryptos to own for 2023 and beyond, I recommend taking Weiss Crypto Investor for a spin. You can do that here.