If you dispose of your crypto assets for less than it cost you, you may have a capital loss. Capital losses can be used to reduce your capital gains in the current or future income years. Make sure you report the loss in your tax return so you have it available to offset future capital gains.
If you lost money on crypto, it's called a capital loss. You can't take it off your regular income, like your job pay but you can use it to lower capital gains from selling other investments, either now or in the future.
Do you pay taxes on crypto? People might refer to cryptocurrency as a virtual currency, but it's not a true currency in the eyes of the IRS. According to IRS Notice 2014–21, the IRS considers cryptocurrency to be property, and capital gains and losses need to be reported on Schedule D and Form 8949 if necessary.
Crypto-asset tax obligations
As a crypto-asset user, you have to report your earnings (or losses) on your income tax returns and may have to collect and remit (pay) the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST).
Yes, crypto losses are tax deductible, following capital loss rules. Losses can offset capital gains and up to $3,000 of ordinary income annually. Excess losses can be carried forward to future tax years. Only realized losses (through actual sales or exchanges) qualify for deductions.
Not reporting taxable income from cryptocurrency is considered tax evasion — which is punishable by a fine up to $100,000 and a prison sentence of 5 years.
Depending on the amount you lost, here are a few things you could try.
Yes, you must report all crypto transactions, including losses, if used to offset gains. This can be done via a Self Assessment tax return or by notifying HMRC in writing.
Common Triggers
Individuals investing in Crypto should be aware of the following common errors that may trigger IRS scrutiny: Failure to Report Crypto Assets on Form 1040: Taxpayers must answer the digital asset question each year. Leaving it blank or ignoring it, even if no transactions occurred, can raise red flags.
All crypto transactions, no matter the amount, must be reported to the IRS. This includes sales, trades, and income from staking, mining, or airdrops. Transactions under $600 may not trigger Form 1099-MISC from exchanges, but they are still taxable and must be included on your return.
Donating crypto to a qualified charity may be tax deductible. Using crypto as collateral for a loan is generally tax-free since no sale occurs. Some states and countries offer reduced or zero taxes on crypto income and capital gains. Accurate records help you avoid penalties and ensure correct tax reporting.
Report all crypto transactions on IRS Form 8949 and summarize gains or losses on Schedule D of Form 1040. Given crypto's volatility and transaction volume: Keep detailed records of transactions, including dates, amounts, and cost basis.
You can potentially minimize your crypto tax liability in several ways, including: Hold it long-term to get a lower tax rate. Holding crypto for more than one year allows you to qualify for lower long-term capital gains tax rates.
Yes, the ATO knows about your crypto. It has an extensive data-sharing program with crypto exchanges operating in Australia. In May 2024, the ATO announced it had requested personal and transaction details on 1.2 million Australian cryptocurrency users from crypto exchanges to recover unpaid taxes.
7 Ways to Avoid Crypto Tax in Australia
If you've bought, sold, or even received cryptocurrency in Australia, the ATO wants to know. In short: yes, crypto is taxed in Australia. Whether you're casually trading Bitcoin or investing in NFTs, the Australian Taxation Office (ATO) treats most crypto activity as taxable.
What happens if you don't report cryptocurrency on your taxes? The IRS is perfectly clear that crypto is taxed, and failure to report crypto on your taxes may result in steep penalties. The punishments the IRS can levy against crypto tax evaders are steep, as both tax evasion and tax fraud are federal offenses.
Late filings are one thing, complete failure is another. A failure to report your payroll taxes is just about the biggest red flag of all for the IRS. Not reporting your own personal income is also another warning sign. The IRS wants to ensure that you aren't withholding income in your calculations.
Crypto and the Wash Sale Rule
The wash sale rule (also known as the 30-day rule) puts limitations on tax loss harvesting when it comes to stocks and securities. The IRS says that you must wait 30 days before buying the asset back. However, most cryptocurrencies and NFTs don't have this restriction.
If your crypto asset is lost or stolen, you can claim a capital loss if you can provide evidence of ownership. You need to work out if: the crypto asset is lost. you have evidence of your ownership.
Allocate your capital effectively: Some traders follow the 80-20 rule by keeping 80% of their capital in low-risk assets and allocating 20% to high-risk trades. Don't rely on too many indicators: It might feel like a good idea to use dozens of technical indicators, but it can actually cause analysis paralysis.
In a groundbreaking transaction on May 22, 2010, programmer Laszlo Hanyecz made history by purchasing two Papa John's pizzas for 10,000 Bitcoin, marking the first real-world commercial use of the cryptocurrency. At the time, the Bitcoin were worth a mere $41.