What is crypto tax-loss harvesting, and how does it work?
Crypto tax planning can help optimize taxes by identifying opportunities to minimize tax liability on cryptocurrency transactions. For instance, donating cryptocurrency to a charitable organization can provide a tax deduction and also avoid capital gains tax on the donated assets.
Crypto tax-loss harvesting is another strategy that cryptocurrency investors use to reduce their overall tax liabilities. This article will discuss the concept of tax-loss harvesting strategy, how it works and the challenges involved.
Crypto-tax loss harvesting is a tax strategy that involves selling a cryptocurrency at a loss in order to offset any capital gains that may have been incurred from selling other cryptocurrencies at a profit. The idea is that by offsetting capital gains with capital losses, the overall tax liability is reduced.
Nonetheless, in order to claim a loss, the assets must be sold, and the proceeds must be used to purchase a similar asset within 30 days before or after the sale. This is known as the “wash sale” rule. Moreover, crypto tax-loss harvesting strategies can be used by individuals or businesses that have invested in multiple cryptocurrencies and are looking to minimize their tax burden.
Related: Cryptocurrency tax guide: A beginner’s guide to filing crypto taxes
However, in most countries, the losses can only be offset against capital gains and not against other types of income. Additionally, there are limits and restrictions on how much loss can be claimed and in which tax year it can be claimed.
In the United States, the Internal Revenue Service (IRS) has specific tax-loss harvesting rules including the wash sale rule, which prohibits an individual from claiming a loss on the sale of a security if they purchase the
Read more on cointelegraph.com
