With tax season just around the corner and 2025 just a short window away, investors must now revisit tax and accounting strategies that support their overall financial health. In December, slight adjustments could mean significant benefits. As cryptocurrency investing continues to gain popularity among retail investors over the past few years, cryptocurrency tax reporting and accompanying strategies for calculating taxes should not be ignored.
Just like the stock market, the cryptocurrency market goes through downturns, but much faster. The cryptocurrency market has plummeted recently, naturally causing panic among investors.
Amid the broader market uncertainty, however, lies a not-so-hidden opportunity: Investors may be able to use these losses to capture tax losses, a strategy that supports lower personal taxable income. It allows investors to use losing positions to offset capital gains. While discussions about year-end tax loss harvesting are not new or unique to cryptocurrencies, the inherent complexity of digital assets, the rapid growth of the cryptocurrency movement, and fragmentation among exchanges, wallets, and more add a layer of confusion to how best to implement this tax strategy.
If you are a cryptocurrency investor and asking yourself how to handle cryptocurrency tax loss harvesting, here are key considerations and tips on how to handle tax loss harvesting within the digital asset space.
Determine your losses and review harvestable assets
Before you begin collecting tax losses, you must understand all relevant digital asset accounts and wallets. Next, individuals should look for assets that are currently trading below their cost basis (the amount paid for the investment or asset, plus any fees). During this step, individuals can determine which digital assets they can sell to generate realized losses that offset capital gains or reduce taxable income.
When conducting a review, the most important thing is to ensure that the accounts are accurate, meaning that all cost bases are accurate. All calculations depend on the accuracy of the accounts, and a single error may limit the ability to correctly measure profits and losses.
Investors shouldn’t feel alone in the identification process; several tools can help determine which assets to sell and how much to sell.
selling assets
Once an asset is identified, investors should take action to liquidate it, either by converting it into cash or exchanging it for another cryptocurrency. This is where tax loss harvesting comes in, as the sale that occurs activates the tax loss.
Reinvest with confidence
If you wish to maintain your portfolio composition, you can purchase any digital assets sold immediately to keep your long-term investment plans on track. Unlike stocks, cryptocurrencies do not have wash sale rules, meaning there is no waiting period to buy back the same asset after selling it.
That said, this is not a loophole that creates false losses by constantly selling underwater crypto assets and immediately buying them back (a transaction with no economic substance).
additional considerations
Tax loss harvesting can be useful for cryptocurrency traders, but keep in mind that it is generally most beneficial for high-income individuals. Those in higher tax brackets can use losses they realize to offset gains that would otherwise be taxed at higher rates.
A smarter approach to crypto tax reporting
Cryptocurrencies are inherently complex due to their decentralization. This convoluted situation can paralyze investors: fear of taking the wrong action often leads to taking no action at all. This is an understandable situation, but investors should be aware that tax loss harvesting strategies can be accomplished at any time when the market value of the asset is less than the original purchase price (called the cost basis). Additionally, year-end tax reviews may trigger reassessments of assets and strategic tax decisions. These two points are currently converging, so now is the perfect time to revisit tax loss harvesting and enter 2026 on a more confident financial footing.
Looking ahead to 2026
While tax harvesting should be top of mind before the end of the year, cryptocurrency traders need to remain vigilant as we enter tax season. Tax filings in 2025 will look different from previous years as the IRS and government agencies look to standardize digital asset reporting. Investors will receive a 1099-DA form from their cryptocurrency broker, similar to the 1099-B form they receive for stocks. Investors need to be aware of costly blind spots, as brokers are currently not required to calculate cost basis, but individuals are required to report this information on their own tax filings. While cryptocurrency brokerages will provide tables, it is the investor’s responsibility to correctly calculate their cost basis, holding period and actual gains/losses.
Tracking cryptocurrency activity is important to ensuring tax season runs smoothly and provides the ability to unlock smarter tax strategies. As cryptocurrencies move from the Wild West to a more regulated asset class, accurate reporting is critical to optimizing your tax position year-round and avoiding being left with money due to overlooked losses or misclassified trades.
