Stock Groups

3 ways savvy crypto investors use the tax code to their advantage


It’s officially tax seasonIf you have traded any cryptocurrency during the year, it is time to file your tax returns for 2021.

These include those who bought or sold cryptocurrency and exchanged it for other cryptocurrency. It also applies to individuals who engage in other taxable events such as the earning of interest on cryptocurrency. For those who have just purchased and kept cryptocurrency, they won’t be held liable.

Although the tax bill may be unpleasant, Shehan Chandrasekera, certified public accountant, advises that it is important to accurately report income and not try to minimize it.

The calculation of taxes on cryptocurrency and nonfungible token (NFT), can be complicated, particularly if you have several wallets, trade with different exchanges, or use no software for tracking your transactions. Chandrasekera is the head of tax strategy for cryptocurrency software company CoinTracker.

He says that there are ways to “actively utilize the tax code in your favor.” This is a big incentive. He says this can help compliance be “benefit-driven”, rather than fear driven.

Chandrasekera says these are the three most important things for “savvy investors”.

1. Tax-loss harvesting

2. Learn the difference between short-term and long-term capital gains taxes rates

Chandrasekera states that investors should be aware of the differences between short-term and long-term capital gains taxes rates. Chandrasekera explains that long-term capital gains can be realized when investors sell assets after they have held them for more than twelve months. Short-term capital gain is when the asset is sold within less than 12 month.

He says that smart investors know about the tax benefits you get when your coins are sold after they have been held for over 12 months.

Because long-term capital gains rates are more attractive than regular income rates (which are generally the same as regular income rates but range from 10%-37%), The long-term rate can range from 0% to 15% and 20%, depending on how much you have taxable income.

Remember that you do not have to pay tax if your activities aren’t taxable.

3. Accounting method that is highest in and first out