If you are living in the United States, then you should be knowing that selling your Cryptocurrency asset for Tax Purposes is considered equal to the other types of assets like stocks, shares, mutual bonds, etc.
That means that selling your Cryptocurrency is just like selling your assets. Don’t you think you are losing something valuable? Well, sure you are making a loss. But what if you can use this loss to gain an extra gross profit on all your other assets.
There are many experienced traders who use this trick to gain a gross profit on all their assets. However, if you are not experienced enough to utilize the Crypto loss to your advantage then it is better that you file a capital loss to get relief on your taxes.
How Net Capital Loss Can Be Deducted Against Other Type of Income
It is very important to keep an eye on the Net Capital gain and Net Capital loss from the Cryptocurrency. If the total loss and total gain add up to give a negative number that means you have accrued net loss. However, if the net loss is not more than you can adjust then in your daily jobs.
It is very important to know about the offset so that you can use that knowledge to make a profit from the other types of Crypto profits. By doing so, this can help you with Tax reduction.
Let’s clear out this scenario with an example.
Let’s say that you have lost $10,000 in cryptocurrency trading, and in the same year, you have made a profit (Capital gain) of $10,000 in the stock market. With the given scenario, you are not eligible to pay any Tax to the Government. The loss in the cryptocurrency trade has offset the profit that you made in the Stock Market. Now let’s say that your yearly income falls under the category of 10% Tax Bracket. Then by the loss harvesting method, you would save $1000 (10% of $10,000) in your Taxes.
However, you must not forget that there are losses as well that can offset your profit. So, don’t forget to mention it in your Tax Form. This method might help you save quite a fortune.
What If You Do Not Have Other Capital Gains?
Now coming to those who have only one source of income or do not have other sources of income to offset the loss. Then the offset amount would be $3000.
Let’s understand this with an example.
Let’s say, you are doing good with your Cryptocurrency investment and have made a profit of $6000 on one of your trades. As time passes, the market faces a crisis where you sold off all your Cryptocurrency at $8000. That means you have gained a loss of $2000. Now say that your yearly profit was around $80,000, then $2000 loss will offset the yearly profit by $2000. Hence, you have to pay Tax for only $78,000.
That’s how you can take advantage of the offset to make a profit out of your Taxes. Isn’t it interesting?
Wrapping It Up
There are traders who are confident about their trading skills not because they can make profits out of their every deal, but because they can make a profit on their losses as well.
You may also consider yourself to be among the best wizards of the Cryptocurrency trading, but there might happen that you may accrue a loss in the near future. So, be sure to take advantage of the offset feature that comes with payable Taxes.
And if you are among those people who are yet to invest in the Cryptocurrency, then you can sure use Crypto profit to get your first deals.