Tax Savings for Crypto Investors: How to Offset Steep Losses
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Here's your money briefing for Tuesday, November 15th.
How did the FTX collapse and recent Bitcoin drop create tax opportunities for investors?
I'm J.R. Whelan for The Wall Street Journal. Investors in cryptocurrencies like Bitcoin are staring at a sea of red after their investments suffered a sharp drop amid last week's collapse of crypto exchange FTX. And that's after Bitcoin lost half its value in the months leading up to November. But all might not be lost. If they act quickly, investors can take crypto losses and turn them into a tax benefit.
the investor can sell it and take a lot of losses. And those losses go into an account to shelter all future gains, capital gains on stocks, on land, on houses, on crypto, on all kinds of things.
Coming up, we'll talk with our tax reporter, Laura Saunders, about what crypto investors can do to bring down next year's tax bill. Plus, she'll tell us how the IRS is broadening its enforcement efforts to unearth crypto transactions that some investors have hidden for years. That's after the break.
This podcast is brought to you by ReliaQuest. Cyber criminals are constantly attacking. They want your data. They want your identity. They want your innovation. ReliaQuest fortifies your business with agentic defense, AI that detects, contains, and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest, agentic defense for the enterprise. Learn more at ReliaQuest.com. That's R-E-L-I-A-Q-U-E-S-T.com.
Lots of people with Bitcoin or other cryptocurrencies in their portfolio have racked up losses as a result of last week's crypto crash.
Why has the IRS struggled to track cryptocurrency transactions for years?
But those storm clouds may have a silver lining. WSJ tax reporter Laura Saunders joins us with steps that crypto investors can take now to cushion their losses, but also to get ahead of new IRS rules focused on crypto investments that are coming in 2023. Laura, thanks very much for being with us.
Thanks for having me.
So, you know, Laura, it seems every year you're with us talking about new rules and enforcement by the IRS when it comes to crypto. And here we are again.
Yes, that's exactly right. You know, it's been hard for the IRS because crypto has developed faster than Congress could change the laws and the IRS could put them in to implement them. And so crypto doesn't have a lot of what we call third party reporting. That's when, you know, if you're an employee, your employer tells the IRS how much you earn. Or if you have a stock brokerage account, the broker tells the IRS if you sell stocks what your gains were. But crypto is still kind of the Wild West out there. And the IRS doesn't really know a lot about who's doing what. And there's a pretty good chance that a lot of people have just ignored their taxes on crypto for about a decade. And so the IRS is always chasing after that.
Wait, did you say for a decade this has been going on?
Well, yes. We just got some new figures buried in an IRS court filing that said that in 2019, only about 100,000 taxpayers filed tax returns that showed that they had gains on cryptocurrency. Now, millions and millions of people own cryptocurrency, and most of them are just ignoring the taxes on it. From what I can tell, that's true, and it's what the IRS thinks, too.
Now, those big gains from previous years are definitely not being seen more recently. It's been a really tough week for crypto. So what can investors do now to maybe ease some of that pain?
Well, there's one very important thing they can do.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:00–0:38
2
How did the FTX collapse and recent Bitcoin drop create tax opportunities for investors?
0:38–2:16
3
Why has the IRS struggled to track cryptocurrency transactions for years?
2:16–4:43
4
How can selling crypto in a taxable account convert losses into tax benefits?
4:43–6:52
5
What are the limits and rules for using crypto losses to offset other income?
6:52–7:55
6
Do wash-sale rules apply to crypto and how does that affect buying back assets?
7:55–8:20
Speakers
3 identifiedMore from WSJ Your Money Briefing
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