Bitcoin Tax Loss Harvesting
💡 Daily Reminder: Stay humble, stack sats
Bitcoiners,
At today's Bitcoin price of $17,000, there's a high chance your bitcoin investment is at a loss.
Luckily, if you live in the United States, there is a way for you to recoup those losses by implementing a strategy called tax loss harvesting.
Here is an overview of tax loss harvesting and how it applies to Bitcoin so you can put some extra cash in your pocket when filing your 2022 taxes.
What is Tax Loss Harvesting?
Tax loss harvesting is an investment strategy used to lower the amount of taxes you owe to the government.
If you buy an asset that tanks in value, you can sell it and realize the loss. The realized losses are used to offset the capital gains tax you would pay on other assets or taxable income for a given tax year. The US government allows individuals to reduce their taxable income by up to $3,000 per year using this strategy. You can even roll over any losses over $3,000 to the next tax year!
See my previous article if you want to learn more about how Bitcoin is taxed in the United States.
How to Tax Loss Harvest Bitcoin
Note, this strategy will have to be implemented before December 31st, 2022 if you want your losses to apply to the 2022 tax year.
Step 1) Track all of the Bitcoin purchases you made on a KYC exchange during the year 2022 and import them into an excel sheet. Most exchanges offer the ability to export your transaction so you don't have to manually record each transaction.
Step 2) Choose an accounting method to calculate your average cost basis. There are (3) methods to calculate your average cost basis and once you pick a method, you must use the same method year after year. The most common method is First in, First Out (FIFO).
Step 3) Calculate the difference between your average cost basis and the current price of bitcoin to determine your capital loss for the year. You can even express this in terms of a percentage to see how much your bitcoin investment is down.
Step 4) Log into a cryptocurrency exchange and elect to sell all your bitcoin at once.
Step 5) Immediately buy back all the bitcoin you sold in the previous step in order to keep your bitcoin stack while gaining beneficial tax savings.
That's it!
Please talk with your certified tax professional before tax loss harvesting your Bitcoin. This is not tax advice.
Happy Monday,
-Pod
If you find any value in The Bitcoin Letter, please subscribe and tell a friend. By subscribing, you will be sent easy to understand information about Bitcoin along with any relevant news daily. That’s it. IT IS FREE AND I WILL NOT SPAM YOU!
BUY BITCOIN RIGHT NOW
I personally use Swan Bitcoin to purchase Bitcoin! Use the link below to get $10 free dollars worth of Bitcoin. Takes less than 5 minutes to sign up and I get a small commission :)
Eric Podwojski
Founder, Bitcoin EDU
Twitter: @epodrulz
Disclaimer: This should go without saying: This is not financial advice. This is not investment advice. I write this newsletter for education and entertainment. Act accordingly.
this is not correct advise. This does not qualify as a tax loss since you are re-buying within 30 days