Crypto Firms Suffered $3.9 Billion In Losses In 2022 – Immunefi
Last year was a trying time for the cryptocurrency marketplace. A report released by Immunefi, a crypto security services platform, uncovered $3.9 billion in losses that the crypto industry endured in 2022.
This significant setback could be alarming for cryptocurrency owners. Yet, a positive side effect may exist for those who have to report digital assets on their taxes.
A CPA from TurboTax, Lisa Greene-Lewis, noted that while crypto investors earned large profits in 2021, their earnings dropped dramatically in 2022 with the emergence of crypto winter. She highlighted that TurboTax is looking to assist investors with offsetting their losses through tax-loss harvesting.
As Greene-Lewis stated, “crypto investors can balance out gains with deficits and use up to 3,000 dollars of any leftover losses to offset their ordinary income. Losses above 3,000 bucks can be rolled over to the next tax year.”
As more and more young investors join the crypto market, the importance of tax-loss harvesting is becoming increasingly evident. According to the Pew Research Center survey findings in TurboTax’s new tax trend report, 16% of US citizens have bought, exchanged, or utilized cryptocurrency.
In particular, people between 25 and 34 are more inclined to carry out crypto-based sales transactions than other age categories. Greene-Lewis suggests that many of these investors need to learn about tax-loss harvesting.
Greene-Lewis noted that tax-loss selling for 2022 might not be possible anymore since the last day for such action had passed on December 30th. However, crypto investors can still use this strategy since their losses are rolled over.
Cryptocurrency And Taxable Income
Moreover, Steven Lubka, Swan Global Wealth’s VP, opined that tax-loss offsetting is an excellent possibility for Bitcoin holders. He added that most people need to be aware of this option and that his company works with personal clients to equip them with practical market analysis.
Lubka noted that crypto investors have the advantage of tax-loss harvesting due to no “wash sale rule” in place, which would stop them from receiving the tax break if they were to buy the same asset within thirty days of selling it. As a result, they can sell their assets, purchase them again quickly, and use the loss to reduce their taxes.
However, this process is likely to change soon. Alex Wilson, co-founder of The Giving Block — a crypto donation platform — pointed out that donating cryptocurrency cuts down on taxable income during a bull market.
He clarified that investors could circumvent paying capital gains tax by donating cryptos instead of selling them. In his words:
“If an investor bought BTC at $1 and sold it at current market prices, that would normally be taxed. But if you donate the Bitcoin to a nonprofit, it comes to be tax deductible. 501(c)(3) charities suffer even higher deductions from contributions.”
Reducing Taxable Income
In essence, donating crypto is an intelligent way to reduce tax liability. Individual retirement accounts (IRAs) are another way for crypto investors to reduce their taxable income.
Despite the recent debate in the US about people buying digital assets with funds from IRAs, Lubka commented that crypto-dedicated IRA options are getting better. He outlined that shortly, Swan Bitcoin will introduce a no-cost Bitcoin IRA available to everyone who uses the platform.
He emphasized that “Traditional IRAs involve very high fees. The only annual cost associated with Swan’s Bitcoin IRA is .25%”.
This product is expected to be attractive to cryptocurrency investors, as evidenced by a recent survey from Charles Schwab which showed that many millennials and boomers would like to have crypto as part of their 401(k) retirement plans.
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