The Light at the End of the Crypto Crash

This article is for you if…

  • … parts of your Crypto portfolio now are worth less than they were a year ago
  • … you bought Cryptocurrencies within the past 12 months
  • … you are dreading your tax returns
  • … you are looking for ways to save money

The Sky was the Limit

No Time Like the Present

And instead of Bitcoin prices of close to 20k, we are now down to a measly 3–4k.

You don’t dare to even think about the money you could have made. But you are also less stressed out. You don’t check CoinMarketCap as much.

But deep down, you know (or at least you hope) that better times are coming. So you don’t sell what you have. Every behavioral economics bias prevents you from it. Crypto is your personal Stockholm syndrome, you are a walking mental accounting case study.

You’ve got to Realize what you Lost!

I know it hurts. But please, hear me out!

There might be something to ease the pain. Something that at least gives you a little redemption. The magic word (or words) is realized losses.

Imagine this:

You bought 1 bitcoin all the way back in 2015 when Bitcoin was still cheap at $200. You are quite happy with your returns, even now, as you’ve made about gazillion percent on your initial investment of $200. And the best part — it was all 100% tax-free! Holding periods rule! (If you’re wondering how that can be, check out our article about holding periods here).

But because you were young and free and an optimist, you expanded your portfolio with another Bitcoin at 7k sometime in August last year. “Buy the dip”, they said.

Have you considered that you’ve actually lost a good bit of money on your second investment? What a stupid question… Of course, you have! You’ve watched in agony as the price went lower and lower.

Due to the way inventory is counted, you can actually realize a loss of about $3,500 if you sell your second Bitcoin within your holding period!

That means that you can carry forward a loss of $3,500 to next year when prices are hopefully going up again! At a tax rate of 25%, this is significant dough — $875 of savings — just for you.

Money for nothing? Too good to be true?

There is no such thing as free lunches.

But I’m sure you would agree that calling the crypto-crash of 2018 “free” isn’t just a bit of an overstatement, it’s outright mean…

So what do you have to do?

How do you separate the cheap from the expensive?

However, if you hold your earlier Bitcoin in a different wallet (i.e. by transferring it there), and you sell the crypto remaining in that original wallet, you are selling the more expensive one and thus, the FIFO method can save you real cash.

Holding your currencies in multiple depots that way can give you a better tax break than Amazon got during the hunt for HQ2.

Is This Legal?

The law is still a little fuzzy on saving taxes just for the sake of saving taxes. However, it does allow tax optimization. Where one ends and the other begins is not always clear, so make sure to speak to a certified expert before attempting this method.

Disclaimer: This article about taxation of cryptocurrencies contains an opinion on generally worded taxation principles. They are explicitly not tax advice. As of yet, the taxation regulation is not completely unambiguous for crypto taxation. This article is not made to answer questions geared towards taxation and cannot replace an individual consultation with an accountant, attorney or bookkeeper.

Please ask your accountant before declaring your taxes.

Connecting Crypto: Track, Manage, and Report all Your Crypto Platforms in One Place.

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