Regulations from government and non-governmental organizations are becoming tight for crypto traders. But financial experts have given the industry some hope for a cryptocurrency tax strategy to reduce tax bills.
IRS defines crypto as a way for investors to pay levies because it’s a property for tax purposes. The difference in sales and purchases makes digital currency a product.
Any asset that is held for less than a year, then it is referred to as short-term gain. The property is to be subjected from 10% to 37% of marginal tax rates. For any activity that takes place for more than one year, then the gains rates of tax will be 0%, 15%, or 20%. This depends on the income of the investors. It’s called the long-term gains rate.
When you buy cryptocurrency coins, there is no chargeable tax fee. But when you convert to another currency, let’s say US dollars, you have to contribute tax. Furthermore, other activities like receiving payments and paying for goods and services also are taxable, a report by CNBC.
Track your gains
The CPA and head of tax at CoinTracker.io software company, admits that many investors do not take time tracking their losses and gains. The reason being after a transaction, the exchange platform does not offer Form 1099-B to show your activities. This forces some investors to take a pen and calculate their losses and profit on their own. Sometimes this is time-wasting for other people.
There are cases where investors have a variety of many wallets from different exchanges. So, it is challenging to know what has happened to this or that wallet. But at the end of the day, their tax plans are in the limelight.
The Vice President of Howard, Adam Markowitz insists that an investor must be responsible for his or her own money. He proceeded, “The problem people are the ones who buy a piece of bitcoin every time they get paid. Then, they turn around and convert that bitcoin 72 times to different things,”
The only solution here is to have tracking software that will provide a list of all transactions to know how the tax was calculated. The software can even track your recent and past transactions.
Loopholes in wash-sale
If you want to gain from tax in 2022, you must be keen on loopholes. The wash-sale rule is not close to any digital asset according to the new rules. Utilizing the moment when the market is down can be advantageous. We have many investors who have done this to save for the future. This could be a better cryptocurrency tax strategy.
Let’s say you bought bitcoin at $60,000, but the market drops slightly. You can sell it with a $10,000 loss and offset the other gains. You might decide to purchase the same asset within a short period as you wait for the rise in the market.
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It’s easier to sell and buy bitcoin in a losing market. Those loopholes might be beneficial if you want to escape more tax. A certified planner at Elemental Wealth Advisor, Dan Herron had this to say. “Maybe you take more [cryptocurrency] losses this year and get back into the market,”
Leverage lower brackets
This is an important aspect when it comes to cryptocurrency tax strategy. As an investor, you might decide to sell digital currency and expect high levies in future moments. Some people qualify even to a 0% tax rate.
If couples file a tax form together with a total income of $80,800, they may pay 0% tax because this was a long-term capital gain. Or each of them can enjoy the same benefit if the income is less than $40,400.
Another individual might decide to sell some crypto at a higher profit without depending on long-term capital gains. After a short period, they repurchased the property with a “step-up in basis” rule. This will bring the tax bill to a lower rate.
However smart you are, you need an expert to be successful in cryptocurrency tax strategy. A tax professional might save your plans and evade millions of taxes from digital assets. Advisors will notify you of what needs to be done after getting your report from the tracking software.
Individuals who have traded for above 6 years can gain from ongoing tax plans. But it can be risky because laws change with time. Markowitz goes ahead to say “You are missing out on potentially enormous opportunities in a market that never closes,”
Financial advisors have various tricks and plans for your business to prosper. The more you receive advice, the better investment ways you get. The tax preparer can predict what might happen in the future. Hence acquiring one might be an added advantage. Before you engage in some activities, ensure you have an expert n that zone.