The recent times have been far from good as far
The recent times have been far from good as far as profitability on Bitcoin investments are concerned. Considering how long the crypto winter has been dragging on this time around, it is safe to assume that most Bitcoin investors have suffered from some kind of losses or the other over the past few months. That necessitates a question: can you write off losses on Bitcoin?
After all, you ARE losing out on tour hard-earned money when the Bitcoin price dips below what you had bought it for and you have to sell it off anyway. Your income automatically undergoes a reduction and in that light, it seems only fair that you should not have to pay taxes on the amount reduced off your income just because the Bitcoin price started acting up.
You May Also Read: Why Does The Price of Bitcoin Move So Much?
Today, we will discuss whether you can write off your Bitcoin losses so that you do not have to pay taxes on them. However, remember, that our discussion will be in context of the USA. Given that the United States has a very large number of crypto users as well as some clarity on this as far as legality is concerned, we will analyse the situation there.
What Does The US IRS Say About Taxing Bitcoins?
The Internal Revenue Service or the IRS in the United States treats Bitcoin as taxable capital. Although it is technically a form of currency, so to speak, it is taxed as you would apply it on a plot of land or an equity share. Basically, Bitcoin is treated the same as a form of property or capital.
This means that capital gains taxes do apply on Bitcoins. But bear in mind, that Bitcoin usage only comes under the purview of tax jurisdiction when you actually USE the said Bitcoins within the given period, be it to buy something or just as a way of selling your Bitcoins off.
Even if you so much as buy a coffee with a part of a Bitcoin, taxes will be applied on your estimated gain or loss in that transaction.
Therefore, unless you have been sitting on your Bitcoin forever, you do have to concern yourself with how your Bitcoin is going to be taxed.
Another thing to keep in mind that if your Bitcoin investments have been made and maintained over a period less than one year, you will have to pay a short term capital gain tax (in case of a profit).
If it is longer, the tax rate automatically goes down. The entire structure depends on your overall income slab.
Can You Enjoy Tax Deduction in Lieu of Bitcoin Losses?
The answer to this is yes, you can. If you buy Bitcoins for a certain amount and you have sell them off for a lower amount, the difference between the buy price and the sell price can be adjusted in your tax forms.
It will reflect accordingly in your income as it will be reduced. Usually, you can even calculate the transaction fees as a part of this.
In fact, it is best to represent your losses accurately in your tax forms because not reporting the loss can attract penalties instead of a tax deduction.
Hopefully, with all this information, you will be able to file for taxes more easily and enjoy tax deductions as well!
Here Are A Few Other Articles For You To Read Next: