A Cryptocurrency Loophole that You Can Use to Save on Taxes

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This is a trick cryptocurrency investors use.

Recently, I sold Solana (SOL), a top cryptocurrency that many are holding. Don’t get me wrong, I do like this cryptocurrency. One thing made me sell and you may want to consider doing the same.

I look at my cryptocurrency investments from the eyes of Elon Musk, Jeff Bezos, and other billionaires.

If you are not looking to make money from your investment, then you are doing something wrong.

Sometimes you do not know when an investment decides to go down. But it happens from time to time.

In these cases, you may want to think about selling Solana or another cryptocurrency investment. This may apply to you or it may not. The situation is different for everyone and this will benefit you at all.

If that is the case, then you will want to hold on to Solana.

However, there will be some cases where it will benefit you to sell.

This all comes down to your tax situation.

My investment in Solana was under my initial buy price

If you bought Solana and with the recent pullback in the market, you may own this cryptocurrency at a loss. This means you bought Solana when it was around $200 or so. The current price of Solana is $160.67 as of the time of this writing.

So you may be down $40 or so from when you bought Solana. If that is the case, you may want to consider selling.

Under the US tax law, you can offset some of your cryptocurrency gains with a loss on cryptocurrencies where you took a loss.

Coindesk stated:

Crypto tax-loss harvesting is the selling of cryptocurrency assets that are in loss positions to offset capital gains. Since every sale or trade of an appreciated asset triggers a taxable capital gain, many crypto traders find themselves owing a rather large sum of money in taxes at the end of the year. These taxable capital gains can be offset with strategic capital losses, which is exactly what tax-loss harvesting does.

In addition to selling Solana, I sold a few other cryptocurrencies. Most of the cryptocurrencies were altcoins.

After selling these, I moved the money and bought Solana and Ethereum.

Ethereum is my second-largest holding after Bitcoin.

Take advantage of the tax laws and think like the rich

You can hate Warren Buffett, Elon Musk, and other wealthy investors or you can follow the tricks they use to stay rich.

The tax law is not written for only the rich. The tax laws are written for everyone, rich, middle class, and the poor.

You just have to learn and copy what the rich do to keep more money in your pocket.

The IRS tax laws are not meant to make you poor unless you don’t know how to use the tax laws in your favor. Taxes are something you will pay forever.

Learn the tax rules and see how you can use them in your favor.

After you have sold your Crypto, take advantage of the no wash-sale rule

In stocks, you are limited from selling and then buying back in 30 days. This is called the wash sale rule under the Internal Revenue Service regulation.

With cryptocurrencies, that rule does not exist even though Congress had this on the table this year to repeal the law.

Under President Biden’s Build Back Better plan, removing the wash sale rule for cryptocurrencies was part of the bill. After the bill passed, the crypto wash sale rule was removed.

For now, you can still use the wash sale rule for cryptocurrencies but who knows how long this will remain an option for investors.

While you can, you should take advantage of this law and use this to offset your cryptocurrency gains with your losses.

Cryptocurrency tax software I use

Calculating the tax value on the transactions for your cryptocurrencies is not easy. The program I use to make it easier is CryptoTrader.

This program pulls your transactions from your cryptocurrency exchange and compiles the information showing your gains and losses.

Once you have the information, you can use it with your tax program or hand it to your tax accountant.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.