Tax loss harvesting is a unique strategy where you sell securities you hold at a loss to offset your own capital gains. Investors should consider this at the end of the year in order to lower their tax bill.
What is tax loss harvesting?
The U.S. government treats crypto currencies, such as bitcoin, as property for tax purposes. As a consequence, taxpayers need to report their crypto-related taxable events at the end of the year.
You will not incur a taxable event until you sell your crypto and realize the gain or loss.This means you may be holding onto crypto that has lost value, and you have the opportunity to realize that loss.
Let’s try an example: imagine you have $40,000 in capital gains (realized gains) for the tax year, but you still own some NFTs worth $3,000 less than what you paid for them a year ago.
If you sell your NFTs and realize the $3,000 loss before the end of the year, you can claim the $3,000 in losses and your total capital gains will be reduced to $37,000.
When should I harvest losses?
It is important to note that harvesting your losses needs to be done during the tax year. Your gains and losses are locked in after the year is over. It’s December, which means you need to act before the end of the month if you want to harvest losses for the current tax year.
Why harvest losses?
Tax loss harvesting helps investors minimize what they have to pay in capital gain taxes by offsetting gains. If you need more information or want to chat about your options, schedule a call with a member of our team!
Will I need to file special forms to harvest losses?
Capital gains and losses are reported on Schedule D of your 1040 (individual tax return). There are no additional tax forms that you'll need to fill out.
Next steps?
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