2018 has been one of the worst years for the cryptocurrency investors as the price of bitcoin along with other major altcoins has been bearish since the start of the year. Bitcoin traded at its yearly low of around $3200 last month while recovering a bit later this month. However, apart from the huge losses that the investors may be facing, there may be a good side of the market crash for the US citizens.
If you are a United States citizen and know how to properly record and file your taxation then probably you are going to save a good amount of taxes this year. Under than US tax code, the bitcoin or other cryptocurrency investors who faced huge losses this year can use such losses to resettle their tax load for the current financial year and beyond.
According to the United States Internal Revenue Service or IRS, cryptocurrencies are treated as commodities and thus are taxed in accordance with how sales of land, stocks, and identical assets are treated.
US Internal Revenue Services Regulations:
Cryptocurrency is taxed under the Capital Gains Tax for which the highest amount of tax rate for long-term gains is 40.8% and for short-term gains is 23.8%. The tax is imposed when a particular asset such as a cryptocurrency is sold at a higher value than the purchase price. For example, if a cryptocurrency investor purchased 1 bitcoin for $1000 in 2017 and sold the bitcoin at the price of $4000 today, then he will be taxed on the amount of gain i.e. $3000.
On the other side, if he is facing a loss in the cryptocurrency market i.e. if he bought 1 bitcoin at $18000 last year and sold it today at $4000 then the amount of loss i.e. $14000 can be claimed against his total capital gains tax burden for all his commodity investments along with his personal income tax which has a limit up to $3000 per financial year. Also, he as an investor can carry forward your current year’s losses to the next financial year too.
The best part is that cryptocurrencies are not liable to ‘wash sale’ regulations which makes it legal for any cryptocurrency investor to only sell a part of their cryptocurrency holdings to record losses on the Internal Revenue Service form and just a few hours later repurchase the same asset again.
Cryptocurrency investors in the US should record all their cryptocurrency trading activities of the financial year accurately and in detail in order to take advantage of the current regulatory framework. There are numerous amounts of cryptocurrency accounting software available online which can be of help.
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