The ‘Biggest Mistake’ is Not Using Tax Loss Harvesting: Koinly Head of Tax Office
According to Danny Talwar, head of tax at crypto tax software startup Koinly, one of the most common mistakes people make on their tax returns is failing to use tax loss harvesting.
Speaking to Cointelegraph ahead of the April 18 tax deadline in the United States, Talwar said that for investors who have had losses in the market between 2022 and 2024, this is the last chance to report losses and “try and get some of those gains.” by offsetting it against any gains made the previous year.
When an investor sells at a loss to offset the amount of capital gains tax due to the profitable sale of an asset, this is known as tax-loss harvesting. “This is probably the biggest mistake people make, not realizing they can use tax loss harvesting,” said Talwar.
“A lot of people might think, ‘Oh, I haven’t made any money in crypto, so it’s not taxable this year,’ but you can make those profits.” So it must be one of the most important methods that people can use. However, he said that in order to claim damages, you must be “aware of the loss in some way”.
“The IRS is pretty clear that you can’t claim a loss on something if it’s gone down in value and you haven’t actually sold it.” Harvesting tax losses, according to Talwar, can lead to “net sales,” which are Internal Revenue Service (IRS) laws that prohibit someone from selling or trading stocks or securities at a loss and then buying those same assets within 30 days. sale.
Crypto is not currently subject to this limitation because digital assets are not yet classed as securities; however, US President Joe Biden’s next budget plan has advocated a crackdown on selling crypto washes. “Rules can change very quickly and retrospectively.” So you really have to be careful and recognize the dangers.”
The IRS, according to Talwar, can still check whether a transaction is real “if you’re doing something just for tax advantages.” “I wouldn’t encourage people to do it, but people do it anyway.” After the IRS explained the situation, Talwar felt that anyone caught in a currency scam or exchange collapse like FTX might not be able to recoup their losses.
“The IRS really came out and clarified their approach because people were wondering if they could claim damages on things like FTX or even rugs,” he explained. Finally, according to Talwar, “the best strategy is to actually pay the taxes” and seek expert help ahead of tax season. Talking to an accountant can be helpful in determining “what waivers and benefits are available.”
“Obviously, using an accountant can help you navigate any complexities or challenges of what to do.” If you haven’t had your documentation ready, Talwar says you can request an extension, but you “still have to pay taxes by April 18”.