“Basically, if you made a sale during the tax year and sold it at a loss, there is an advantage,” says Koinly’s chief tax officer.

Crypto investors, especially those who invested in the top market in 2021, can find compensation in Australia through a tax-saving strategy called “loss harvesting,” according to Koinly’s tax chief.

Koinly is one of the most widely used cryptocurrency advisory firms on the internet. Australian Revenue Commissioner Danny Talwar told Cointelegraph that while most retail investors are aware of their obligation to pay capital gains tax (CGT) when they make a profit, many are unaware that the opposite is true and that losses are being used to reduce their overall tax. accounted for by offsetting capital gains elsewhere:

“Most people are familiar with the concept of income tax. But what they can’t do is understand that they can recognize this loss on their tax return and then make up for it with profits.”
crop loss
Loss collection, also known as tax loss collection or tax loss sale, is an investment strategy in which investors either sell, exchange, issue, or even give away an asset that has fallen into the red, also known as a “disposal”. – to give them the opportunity to “realize the loss.” Investors usually do this in the last weeks of the tax year, which is now in Australia. Talwar notes that this strategy works in many jurisdictions with similar CGT laws, including the US.

“Countries like the UK, the US and Canada have very similar capital gains tax regimes to Australia, or some form of loss compensation,” he said.

This concept is also used by traditional investors in stocks, bonds and other financial instruments. In the crypto world, a loss can be received by converting it into fiat or simply exchanging it for another crypto-token on the exchange.

Talwar believes that the surge of new crypto investors over the past few years has likely spawned many loss-making portfolios given the current bear market:

“Many crypto investors entered the market around 2020 and 2021. This means that most of these people will actually be at a loss, leaving their portfolios in the red.”
Will it work?
Talwar noted that there are certain nuances in each country’s tax systems, such as B.’s attitude towards “fictitious sales”, which can affect an investor’s ability to take advantage of tax losses, and suggested that investors consult with their accountants to find out how best to implementation of this strategy.

“A fake sale basically means that you sell the same asset and buy it back in the same period, only to report the loss on your tax return.”

This is illegal in some countries, or the tax authority may deny the claimant the realization of the tax loss.

Koinly has published a guide explaining how washing powder sales regulations may vary from country to country.

As a rule, Talwar suggests that anyone with a portfolio in the red should consider collecting damages:

“More pertinently, if you made a sale during the tax year and sold it at a loss, there is basically a benefit that people can miss out on by not including it on their tax returns.”
The “extreme exception” would be the case when the investor’s portfolio contains only unprofitable cryptocurrencies and nothing else. In this case, you have no winnings to calculate.

Related: Taxes Are Paramount to Bitcoin Salaries, Says Exodus CEO

“You should talk to your accountant. Do they have other assets that they can significantly offset? You know, it makes no sense to admit losses when cryptocurrency is your only investment, you have 99.8% of your savings in the bank, and you are never going to invest again.”

The IRS is on the mend
Talwar believes that while the global tax authorities have made great strides over the past three years to keep up with the booming crypto industry, they still have a lot of catching up to do as more retail investors enter the market and the availability of crypto continues to grow:

“Three years ago, the tax authorities rarely had any guidance on crypto. And the crypto space was a completely different beast three years ago than it is today. It has become much easier for ordinary investors to buy cryptocurrency

Source: CoinTelegraph