Top Crypto Tax mistakes to watch out for

There’s been a lot in the news lately about tax, particularly in the USA with IRS crypto tax proposals set to bring significant changes and increased focus on our crypto transactions. As many taxpayers based in the USA received an extended deadline of October 16, we thought we'd highlight some of the most common crypto tax mistakes we see. Please note, this isn't financial or taxation advice but rather a general awareness post.

1. Not Utilizing Tax Loss Harvesting ????

If your portfolio is looking down, tax isn’t going to be front of mind. One of the most significant advantages of crypto taxation is the ability to offset gains with losses. Tax loss harvesting involves selling investments at a loss to reduce your tax liability. This strategy can be especially helpful if you've experienced losses this year. Keep in mind that there are specific rules and limits to follow when using this approach, so consult with a tax professional if you're uncertain.

2. Neglecting Long-Term Gains Strategies ????

If you've been holding onto your crypto for over a year, you could qualify for long-term capital gains tax rates, which are typically lower than short-term. This also applies to many countries such as USA, Canada, Australia and Germany. Don't forget to factor this into your tax planning. Careful consideration of when to sell or hold your assets can make a substantial difference in your tax bill.

3. Failing to Maintain Proper Records ????

The IRS has significantly improved its capabilities to track crypto transactions. It's crucial to keep detailed records of your cryptocurrency transactions, including purchase dates, amounts, and prices. Neglecting this could lead to issues down the line. Several cryptocurrency portfolio trackers can help you keep organized records.

4. Not Seeking Advice from Tax Professionals ????

Crypto tax can be complex, and tax laws are changing to catch up with crypto. We've seen many crypto enthusiasts miss out on potential deductions and credits because they didn't consult with tax professionals who specialize in cryptocurrency. Enlisting their help can often pay off in the long run and save you money.

5. Assuming the IRS Won't Ask Questions❓

One of the most common misconceptions is that the IRS won't investigate cryptocurrency tax filings. This is not the case. The IRS has made it a priority to enforce crypto tax regulations and has even updated tax forms to include a specific question about cryptocurrency activities. It's better to report your crypto gains and be prepared to answer questions if they arise.

Remember that the information provided here is for general awareness and not a substitute for professional advice. Always consult with a certified tax professional for personalized guidance based on your specific situation.

With the extended October 16 tax deadline right around the corner, it's worth making sure you don’t fall into these common crypto tax mistakes.