Crypto markets are down over 70% from their 2021 highs, leaving many investors with large losses this tax season. Crypto investors were hit by everything from the Terra LUNA collapse to Celsius and Voyager declaring their bankruptcies and, of course, the FTX fallout, which saw the downfall of hundreds of other crypto firms in late 2022.
While many crypto portfolios are down, stressed-out investors can get some relief in the form of a handy tax benefit. Crypto tax calculator, Koinly shares their top three tax tips to consider following the crypto crash of 2022
Table of contents
1. Understand Loss Harvesting
Tax loss harvesting is a method that allows investors to offset realised capital losses against capital gains. If you sold any of your crypto assets at a loss during the last financial year, you could benefit from loss harvesting.
Maybe you sold an NFT that was down in value, or you cashed out what was left of your LUNA holdings – either way, these losses could be used to offset capital gains made from more successful crypto trades or even gains from share trading or real estate.
The best bit is your capital losses can be carried forward against future capital gains over multiple financial years. However, if you’re holding unrealized losses (that you didn’t sell before the end of last financial year), these can’t be taken advantage of until sold and crystalized and will apply to your tax return next financial year.
Be careful of wash sale rules. These prohibit the sale of assets at a loss in order to claim a capital loss before immediately repurchasing them – however, these don’t apply in all countries.
While you’ll be unable to sell and immediately repurchase in the UK or Australia, for those in the US, crypto isn’t considered a security, so there is no wash sale rule specifically for the sale and purchase of crypto assets.
2. Get Organized Now
Waiting until the tax deadline can leave you stressed and unable to make the most of your tax return. Upcoming tax deadlines across the globe are:
- UK: January 31st 2023
- USA: April 18th 2023
- Canada: May 1st 2023
This means for those in the UK, there are only days remaining, while for those in North America, there’s a little more time. Either way, don’t wait until it’s too late. Tax offices have signalled that crypto is again on their radars and take tax deadlines seriously.
Get organized now by connecting your transactions from any wallets, blockchains and exchanges you may have used in the last financial year. Koinly allows you to track your crypto portfolio across DeFi, NFT, leverage trading and more with over 700 integrations, including Binance, KuCoin, Kraken, Trust Wallet, Metamask and more.
3. Maintain Proper Records
Ahead of this tax season, tax offices around the globe, including the IRS, HMRC and CRA, have highlighted that maintaining proper records is important to accurate tax returns.
A general rule of thumb is to keep good records of all crypto transactions you’ve done across the past 3-5 years. This allows you to correctly report your crypto gains or losses with your local tax office. It can also help when it comes to tax loss harvesting and ensuring you don’t overreport gains or underreport losses.
As a crypto investor, you may have transactions spread across dozens of exchanges, wallets and blockchains, with hundreds (or even thousands of transactions) on each, leading to a headache at tax time. Using a crypto tax calculator, like Koinly, can streamline this process for you, saving you time and money (and may even be tax-deductible, depending on where you live).
Crypto Tax Made Easy
With over 700+ integrations across the top exchanges, blockchains and wallets, Koinly can handle everything from NFTs, DeFi and staking to airdrops and derivatives.
Koinly helps you and your accountant quickly and easily import all your crypto transactions into one dashboard and generate tax reports from the past financial year, streamlining the countless hours this may take if done manually.
Koinly is a cryptocurrency calculator used by crypto investors in over 20 countries. Koinly integrates with 700+ exchanges, blockchains, and wallets to give investors an easy and accurate way to track their crypto transactions in one place. From here, Koinly calculates the total capital gains and income an investor has derived from their crypto in any financial year.