When you lose money from a bad trade, you can claim that as a deduction on your annual tax return. Americans collectively lost $1.7 billion trading bitcoin in 2018 – but many are unaware that they can claim these losses as a deduction.

We’re entering tax season. Americans who owned bitcoin in 2018 likely lost money on their investment. Unless you shorted bitcoin or had perfect timing, you likely lost money by holding bitcoin in 2018. Crypto prices have fallen by as much as 90% from their all-time highs in December 2017 and January 2018. It was a rough year for the crypto industry overall.

According to a new report, however, a surprising number of Americans are unaware they can claim a deduction from their bitcoin trading losses. That report comes from Credit Karma, which states that Americans lost $1.7 billion in 2018 from trading crypto. In addition, there was a total of $5 billion in unrealized losses.

However, the new report claims that most Americans aren’t planning to claim a tax deduction – even though they’re entitled to do so.

Some Americans aren’t claiming a deduction because they’re simply unaware it’s an option. Other Americans are wary about reporting any bitcoin-related investments on their annual tax returns. They’re avoiding reporting bitcoin as a deduction because it tells the IRS they own bitcoin at all. The benefits of claiming a deduction this year are balanced out by the fact that the IRS knows about your bitcoin in the future.

Nevertheless, Americans are legally entitled to claim realized investment losses as a tax deduction. You can reduce the amount of tax you pay with a few simple steps.

Here’s how Credit Karma explained the issue in their report:

“Even though those who sold their bitcoin at a loss can typically claim a tax deduction we found that before taking our survey, 61% of respondents who lost money on bitcoin didn’t actually realize they could get a tax deduction for bitcoin losses.”

Furthermore, 58% of respondents polled by Credit Karma claimed they were more likely to claim a deduction now that they know they can claim their bitcoin trading losses as a deduction.

Stated another way, 42% of respondents do not plan to claim bitcoin trading losses as a deduction even though they’re aware it’s an option.

Only 100 of 250,000 Tax Returns Filed in 2017 Reported Crypto Gains

A separate Credit Karma report from February 2018 found that just 100 of the first 250,000 tax filings from 2017 reported cryptocurrency gains.

Typically, most studies indicate that anywhere from 2% to 10% of Americans own some amount of crypto. Clearly, Americans are keeping that information off their tax returns, however.

It remains to be seen if similar numbers will be reported on 2018 tax returns. It’s widely expected that thousands of more tax returns will report cryptocurrency gains or losses in 2018.

Why Aren’t Crypto Owners Planning to Claim a Deduction?

The real question is: why do so many Americans plan to avoid claiming crypto as a deduction – even though they’re legally able to?

“I think it’s ignorance of the law and ignorance on the part of the tax industry,” said one crypto tax expert in an interview with Market Watch. “If you ask the average tax [accountant] they don’t know anything about it and they’re not asking about it. They’re doing a disservice to clients.”

The average H&R Block employee, for example, may have no clue how to report crypto gains and losses.

Typically, crypto gains and losses are calculated the same way as commodities for tax purposes. That means you have to report every purchase and sale of the commodity on your tax return, including the price at the time of the sale and purchase. Using this information, you can calculate your losses or gains for the year.

Cryptocurrency is a new industry. In 2017, few tax returns stated bitcoin gains. In 2018, things may change, as more users claim crypto losses as a deduction. However, based on the research from Credit Karma, it seems that many crypto hodlers plan to avoid mentioning bitcoin on their tax returns at all – even though they know it’s an option.

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Source: https://bitcoinexchangeguide.com/americans-recorded-crypto-trading-losses-of-1-7-billion-in-2018-investors-should-claim-tax-deductions/