Crypto Traders Can Save on US Taxes

Published on: 04 Apr, 2018

For American cryptocurrency traders, a tax trap awaits. They have not paid their taxes despite huge capital gains enjoyed in 2017. The first half of 2018 saw the cryptocurrency portfolios declining in value and they incurred huge trading losses. It implies that they must sell their cryptocurrencies to pay for their 2017 tax liabilities before or on the April 17 due date.

The selloff will leave these cryptocurrency traders with a much reduced currency stock to trade. There is of course the option to file automatic extensions sans any small payment or tax payment. They could also incur a penalty due to late payment of up to 0.5 percent every month within the October 15 due date. If the latter is the case, then the traders would depend on the possibility of increase of coin prices. There may also be trading gains within October 15. The tax traps could get even worse. A number of cryptocurrency traders could suffer huge capital losses within 2018 and then get stuck with the capital loss limitation of $3,000 against any other source of income. The popular view is that it is not fair to pay huge capital gains for the financial year 2017 sans any ability to enjoy any instant tax relief for any  bosses. The latter can use a number of safe strategies to slash the tax bill.

Active cryptocurrency specialists could qualify for the Trader Tax Status or TTS as it is popularly known. These can be used to deduct home office and trading business expenses. This TTS is important in 2018. The President Donald J. Trump signed Tax Cuts and Jobs Act suspended all investment expenses. The IRS disallows the employee benefit plan based deductions on any investment income. Any TTS trader could write off the health insurance premiums and the retirement plan contributions via trading by an S-Corp with the officer compensation.

TTS bring with it Section 475 benefits. The latter turns capital losses and also gains into ordinary losses  or gains. This helps to sidestep the limitation of $3,000 capital loss and the adjustments made on wash-sale losses on securities. The ordinary losses then offset income of  any possible kind. This makes them much more useful compared to capital losses. Other benefits can also be found. The brand new law brought in a 20 percent deduction on the qualified business income as per the Section 199A.


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Danny Abramov



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