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If you’ve lost money in the cryptocurrency market, you may be able to deduct your losses on your taxes. Here’s how to report your crypto losses on TurboTax.
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Introduction
According to the IRS, virtual currencies, such as Bitcoin, are taxed as property. That means if you invested in Bitcoin and it went up in value, you’d pay capital gains tax on your profits when you sold it. Similarly, if Bitcoin went down in value and you sold it for less than you paid, you could deduct your losses.
What is a cryptocurrency?
Cryptocurrencies are digital or virtual tokens that use cryptography for security. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Cryptocurrencies are often traded on decentralized exchanges and can also be used to purchase goods or services.
What is a taxable event?
A taxable event is a profit or loss on a cryptocurrency transaction that is subject to capital gains tax. When you dispose of your crypto, you need to calculate your gain or loss at the time of the disposal. If it’s a profit, you may need to pay capital gains tax. If it’s a loss, you may be able to use it to offset other capital gains.
How to report crypto losses on your taxes
TurboTax has been updated to help taxpayers who have lost money on their cryptocurrency investments. Here’s what you need to know about how to report crypto losses on your taxes.
The process for reporting crypto losses is similar to the process for reporting other investment losses. First, you’ll need to calculate your basis, which is the original value of your investment. You’ll then subtract your basis from the current value of your investment to calculate your loss.
To report your crypto losses on TurboTax, follow these steps:
1. Log in to your TurboTax account and select “Add a Form”
2. Select “1099-B” from the list of forms and enter your information
3. On the “ misc information” page, select “Cryptocurrency” from the list of options
4. Enter your information and then select “Done”
If you have any questions about how to report crypto losses on your taxes, be sure to contact a TurboTax specialist for help.
Conclusion
While there is currently no specific guidance from the IRS on how to report cryptocurrency losses, there are a few options available. You can either report your losses as a miscellaneous itemized deduction on Schedule A of your Form 1040, or you can amend your return for the year in which you suffered the losses and file an amended return.
Whichever option you choose, be sure to keep good records of your losses so that you can demonstrate to the IRS that you have actually suffered a loss. Keep in mind that cryptocurrency is a volatile asset, and its value can change rapidly. As such, it’s important to calculate your losses carefully and accurately report them on your taxes.
