This is a risky move if you want to sell your Bitcoin. But I will outline one reason you may want to consider this.
With the recent market crash are there may be more on the horizon, you may want to sell your Bitcoin. As a person who wants to HODL and accumulate as much Bitcoin as you can, there is nothing wrong with that.
There is one reason you should sell. This may actually help you keep more money in the end. These rules apply to the United States (U.S.) since other countries have different tax laws.
With the current U.S. tax law, you can sell cryptocurrencies if you hold them at a loss. You can use this to offset any gains you have made in your cryptocurrency portfolio. You do want to pay less in taxes, right?
The I.R.S. has this offer available and you should take advantage of it. I am not a tax accountant but have worked with some smart individuals in this field. Plus, I spend a lot of my time educating myself on the tax law.
I do encourage you to verify my information with your tax advisor since the tax law changes often.
If Warren Buffett and other wealthy people can use the tax law to work for them, then there is no reason you could not do the same. The tax law is written for every person in America.
Taxbit shared their thoughts on the crypto tax law.
“Imagine if you could appreciate wealth over time while in the process increase your tax refund, or at a minimum reduce what you may owe in taxes. Tax-loss harvesting does exactly that!”
If you took a loss on Bitcoin from your initial purchase price, you could sell Bitcoin and use the amount lost to offset the gains on your cryptocurrency investment.
According to Koinly, the U.S. tax law allows a cryptocurrency investor to sell up to $3,000 of their cryptocurrency loss to offset their cryptocurrency gains. You can use this tax law to offset your losses in the recent Bitcoin crash.
If you don’t have Bitcoin to sell, you can use the same rule for other cryptocurrencies. You can use the tax law to work in your favor to offset losses on other cryptocurrencies you have held.
One other reason you may want to consider selling your Bitcoin
Before you decide to sell your Bitcoin especially if you have made a profit, you need to do one other thing. I always do this before I sell my cryptocurrencies.
When you want to make money in this market, you have to know how long you held your asset.
If you like to day or swing trade, then you’ll be fine. But if you like to HODL, you probably want to pay close attention to this. When you don’t, this could cost you more money. Cryptocurrencies are tracked in a similar way to stocks. You can have your cryptocurrencies and hold them for a short term or long term.
Short-term trade - any cryptocurrency you hold for less than a year is considered a short-term trade. If you bought and sold a cryptocurrency in a one-year window and made a profit, then the trade is considered a short-term trade. Your trade will be taxed at a higher rate.
Long-term trade - any cryptocurrency you hold for more than a year, is considered a long-term trade. If you bought and sold a cryptocurrency over a one-year time period and made a profit, then the trade is considered a long-term trade. Your trade will be taxed at a lower rate as compared to a short-term trade.
Trading cryptocurrencies requires a little more thought before you buy and sell
It is easy for anyone to buy Bitcoin today. You need to think a little before you decide to sell. This is where tax planning is key for you. You may not be a tax expert, but as long as you know the basics, this will help you out overall.
You should know for every cryptocurrency that you buy, you need to have an exit strategy. This will help you keep more money in your pocket and make better decisions.
To understand more about Crypto tax loss, watch this video:
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.