Tax-loss harvesting could make the crypto crash less painful

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Crypto investors have collectively lost trillions…billions—from November 2021. If you’re one of those unfortunate souls, you have options. You can run through the streets screaming. You can make a Sam Bankman-Fried chew toy and let your dog make it. Or you can consider tax loss harvesting, a smart strategy to reduce your tax liability from financial losses.

  • There is a limit to your bountiful harvest. Individual filers generally cannot claim more than $3,000 a year in losses. But if you lost more than three grand a year, you can still transfer funds to offset future tax liability.
  • Harvest isn’t just for the ultra-rich. “Our view is that tax loss harvesting is one of these basically zero-risk strategies that could save you thousands of dollars,” Alexander Harmsen, founder and CEO of portfolio management service Global Predictions, told Money Scoop. “It is mainly used by wealth managers and their clients [and] it was also very popular among robo-advisors [but still] you have to give them your money to manage.” In other words, you can benefit from managing your own crop. (Just consult a tax professional when it comes time to file).
  • FTX’s situation is extremely awkward. If your money gets caught in FTX’s tornado of destruction, you may not be able to collect until the money is confirmed as lost. (As of now, all FTX funds are frozen, leaving users in total limbo).
  • Watch out for the wash-sell rule. Under this rule, you cannot deduct a loss if you repurchase the same (or substantially similar) asset 30 days after you sell it. The rule does not currently apply to cryptography. (The Biden administration has tried to push crypto regulation but hasn’t made much headway to apply the wash sale rule to digital assets.) Still, crypto regulation is evolving faster than you can say “Help me, I’m poor.”
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While this strategy may not completely ease the sting of crypto losses, it may be the Alocane you need right now. Happy harvest, pilgrim. 🚜– Lilian


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