The Internal Revenue Service has been turning up its scrutiny on cryptocurrency investors in recent years, and as that happens, more investors have been turning to the tax code’s rules on investment losses.
The latter is a tax planning strategy many crypto investors will have to consider after 2022’s tumble for bitcoin, ethereum and other digital assets — not to mention the implosion of the cryptocurrency exchange FTX. The same pattern of increased tax-loss harvesting played out when researchers looked at billions of trades from more than 30 cryptocurrency exchanges.
“A crypto investor’s decision to make use of tax-loss harvesting as a tax planning strategy by necessity implies a degree of tax compliance, in that the investor must report crypto trading to the tax authority to take advantage of the strategy,” researchers wrote. “Exchanges with presence in, or are regulated by, the United States exhibit a greater amount of wash trading than international peers following increases in tax scrutiny, and the effects are more pronounced during market downturns and year-ends,” the study said.
Cryptocurrency losses shouldn’t be subsidized by taxpayers SECGov IRS_CI
Crypto traders should be allowed to realize losses and carry them forward. Hopefully, they use the proceeds to invest in securities with intrinsic value. But if not, they should be subject to the same wash sale rules as investors in traditional securities.
There should be NO taxpayer subsidies for cryptocurrency losses. SECGov IRS_CI
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