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How to reduce your cryptocurrency tax bill before year-end

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rear A tough year for cryptocurrenciestaxes may not be a top priority for digital currency investors who have suffered huge losses.

However, with the decline of the crypto market and recent collapse Digital currency exchange FTX could impact next year’s tax bill, according to financial experts.

Despite recent losses, “year-to-date gains are still on the books,” said Andrew Gordon, a tax accountant, CPA and president of Gordon Law Group.

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Cryptocurrency trading is usually more active when the market is rising, which increases the chances of making a profit.

However, depending on when you bought or sold an asset, you can make a profit even if the market goes down.

IRS defines cryptocurrencies as a property For tax purposes, you must pay tax on the difference between the purchase price and the sale price.

Digital currency purchases are not taxable, but converting assets into cash, trading with another coin, using them to pay for goods and services, or receiving payment for work can be taxable. There are cases.

How to reduce your crypto tax bill

If you are suffering from cryptocurrency losses, you may see a ray of hope. Gordon explained that there is an opportunity to offset 2022 gains or carry forward losses to reduce future gains.

a strategy known as tax loss harvestingdigital currency earnings, or other assets. End of Year Mutual Fund PaymentsAfter reducing investment gains, losses of up to $3,000 per year can be used to offset your regular income.

If you still need exposure to a digital asset, “you can sell it and buy it back right away,” said Ryan Losi, a CPA and executive vice president of PIASCIK, a chartered accountant firm. says.

Currently, the so-called “washout rule“- Blocks investors from buying “substantially identical” assets 30 days before or 30 days after the sale– Not applicable to cryptocurrenciesHe said.

How the FTX Crash Impacts Taxes

Crypto taxes are already complicated, but they are even more complicated for FTX customers. “It can be treated in different ways, depending on the facts of the case,” said Losi.

you might be able claim capital loss, or “bad debt deduction”, and write off the amount paid for the property. But “it should only be done if the loss is certain,” Gordon said.

When Unsolved FTX bankruptcy casethe customer can choose apply for tax extension He said he would wait until the details were clear.

“It’s a matter of individuals and their tax filers,” Gordon added. “There is no clear way to go with it.”

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