Unless you have been living under a rock, you know about or may even own Cryptocurrency. Cryptocurrencies have been around for about a decade but only recently have become mainstream. If you are thinking about selling your Crypto early in order to lower your taxes, you may want to gain more knowledge before doing so.
When To Sell Your Crypto
Selling Crypto is something that is similar to selling a stock. You buy it at a certain price and sell it for a profit. That is the ideal situation, but sometimes when the market is bearish, you sell early at a loss in fear of losing your full investment.
When you sell your Crypto too early, you will have to pay Short Term Capital Gains taxes, as Crypto is taxed as an asset, not a stock. If you hold and sell your Crypto for less than one year, this tax will apply.
If you choose to hodl, a term meaning to hold your crypto asset for longer than a year, you will not be taxed as a short-term capital gain.
Most “hodlers ” have high hopes for the crypto they choose.
If you choose to sell your crypto after the one-year mark, you will be subject to long-term capital gains taxes, but they are not as steep as short-term.
Does A Bull Market Matter?
A bull market is when the crypto is flourishing and attaining new levels. 2021 was a bull market, with bearish cycles. This means that it moved upward to higher and higher amounts, some reaching their all-time highs. The bearish cycles came into play when those high levels retraced back to a lower amount.
Most cryptocurrencies ended the 2021 year higher than the previous year but not as high as the mid-may bull cycle. Because the second half of the year has bearish tendencies many people became afraid and sold at a loss.
Should I Sell At A Loss
It is up to you whether or not you want to sell at a loss. The crypto market is volatile and fluctuates a lot throughout the year. Selling at a loss on a short-term investment means you could be charged taxes on your loss.
Also, it is possible that the crypto that you sell could rebound quickly and you could miss out on buying it at a good price.
Should I Hold On To My Crypto
If you have the patience to hold your crypto, in hopes that it will one day may you wealthy, this may be the best way to hold off on paying taxes. Especially if you don’t want to pay short-term capital gains tax.
Whether you bought Bitcoin, Etherium, or another crypto asset, you want to keep track of how much you bought each crypto asset for. You will also want to keep track of when you purchased them, and if you choose to sell, you will want to know if you have held the asset for a year or longer.
The better you are at keeping track of your cryptocurrency the easier it will be during tax season.