Emily Walker
The cryptocurrency market is currently thriving, and many investors are set to see a favorable return on their investments as 2024 approaches. This positive trend may also mean extra attention from the IRS when tax season arrives.
However, while it’s great to see profits, crypto losses can actually work to your advantage when it comes to minimizing your tax bill. Losses can be used to offset any gains you’ve made in your crypto investments. With promising prospects for coins like Solaxy ($SOLX), it’s prudent to evaluate your tax situation sooner rather than later.
Understanding Taxable Crypto Gains
Meme coins are currently on the rise, including popular options like Crypto All-Stars ($STARS), Wall Street Pepe ($WEPE), and CatSlap ($SLAP), which are attracting investors with their enticing staking options and rising values. Amid a bullish market, it’s easy to forget that a portion of your profits must be reported to the government.
Beginning January 1st, the IRS will implement significant changes to tax regulations, meaning it’s critical to prepare ahead of time. Without plans in place, you might end up paying more taxes on your crypto earnings than expected. Planning how to manage your tax liabilities, including utilizing losses, is essential.
It’s important to note that this information isn’t a substitute for professional advice. While we can provide some useful guidelines, it’s essential to consult with your accountant, as individual tax situations vary widely.
When Are Crypto Gains Taxable?
To clarify what triggers a taxable event, according to information from Forbes, you’ll need to report taxes on your crypto gains if you engage in the following activities:
- Converting crypto to fiat currency
- Exchanging one cryptocurrency for another
- Using crypto to purchase goods or services
- Receiving crypto as rewards from staking or mining
- Obtaining airdrops or engaging with hard forks
If you’ve participated in any of these actions throughout 2024, consult your accountant to obtain a Form 8949, Schedule D, or Schedule 1 for reporting purposes.
Offsetting Your Tax Bill with Losses
It’s wise to set aside about 25%-30% of your crypto earnings for taxes. However, you can potentially reduce this by incorporating your losses into your tax return, a completely legal approach. Remember, this strategy must be executed by December 31st for it to count against your 2024 tax obligations.
This process is known as tax loss harvesting. It involves reviewing your portfolio for underperforming assets to sell at a loss, which you can then report to the IRS in hopes of reducing your taxable earnings. In some cases, these losses may even benefit future tax filings.
This demonstrates how losses, while seemingly negative, can provide financial advantages.
Seek Professional Guidance!
The information provided here is general in nature. Always turn to a qualified accountant or tax attorney to ensure the guidelines are tailored to your specific circumstances. Just like in the world of crypto investments, thorough research is essential!