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DO THIS When Crypto Crashes to Save $1000s (seriously) - YouTube
Channel: Max Maher
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If you're in crypto,
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thousands of dollars.
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Today, we're going to talk about one specific
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loophole in crypto that may change in the
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coming months, and that is the Wash Sale.
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And you can still use this today.
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To start, I want you to think of this video
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a companion to my guide on crypto taxes.
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In that video, I talked about making sure
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to account for your losses as well as
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your gains, because you can actually save
money.
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This is because when selling any investment
for a loss,
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you can claim that loss as a tax deduction.
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Let's say you profited $5,000
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this year from buying Bitcoin,
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but you also sold some Ethereum at a $300
loss.
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You can legally deduct the $300 loss
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from the taxes you owe
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from your $5,000 gain,
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Now because you can write off losses,
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many investors do something that's called
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Tax-Loss Harvesting.
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Here you're basically selling your assets
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at a loss, so you can then
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claim those losses against other gains.
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This can cover some of the taxes you have
to
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pay on ordinary income or
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capital gains for the year.
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It's really exciting.
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This is where the trick comes in.
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After selling at a loss, you might get a brilliant
idea.
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You might think,
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this way, I can use the loss to my advantage
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on my taxes
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And to this, I would say
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to slow your role just a little bit.
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The first big roadblock here
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is the IRS has rules in place to prevent you
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from creating artificial losses in financial
securities.
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And that's where the Wash-Sale rule comes
in.
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But luckily for us,
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So put simply, the IRS saw people
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pulling this trick in the past, and they
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put a rule in place saying,
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if you sell security like a stock,
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you can't buy the same security
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or a "Substantially Identical Security"
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30 days before or after the sale
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and then use that sale as a tax deductible
loss.
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And I want you to note how I said
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There's a full 61-day window where you
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can't buy the same stock to effectively rig
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the tax system to your advantage, unfortunately.
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- Disappointing!
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- You're probably, you know, turning white
right now,
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your crypto rap sheet thinking,
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Well, this is of no benefit to me,
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For at least the rest of this year,
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And why is that, you ask?
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Not yet, anyway.
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That means you can buy and sell as much
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crypto as you want, allowing you to your
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crypto losses as tax deductions.
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You can even deduct this against your
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regular income
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And I know this seems too good to be true.
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And before I show you exactly how this is
done,
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I need to remind you that this is for
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entertainment purposes only.
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because I am not your financial adviser.
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Now let's do an example.
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Let's say an investor bought the Squid game
token,
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that ran to $0, where he then sold.
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We'll call him Jimothy.
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He lost $20,000 and never
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bought crypto again.
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He should have used my crypto scam checklist.
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Jimothy, this would have been avoided.
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He can actually claim that $20,000 loss
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against ordinary income like wages,
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salaries, tips, bonuses and interest income.
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Claim it against that.
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He can only claim $3,000
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per year against ordinary income
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until all the losses are covered.
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So Jimothy will have a $3,000 deduction
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for the next six years
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and the 7th year he'll have a partial $2,000
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deduction and at this point his entire
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$20,000 will be accounted for.
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Now this is great and all
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But let's go further and do an example using
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And this is where you can literally save
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thousands more.
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Okay, Jimothy, he buys $40,000 of Jim coin,
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a crypto built specifically
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for people named "Jim".
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No one saw it coming,
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but Jim coin tanked.
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And Jimothy's stack is now worth $20,000.
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He wants to use this loss
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to his advantage, but he still wants to be
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in Jim coin because there's some rumors that
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Jim Crammer's gonna talk about it
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and he wants exposure to Jim coin.
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So Jimothy at the sells his position at
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$20,000 and buys right back in.
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His position is still worth $20,000
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and he now has a capital loss
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of $20,000 as well that he can use on his
taxes.
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But Jimothy also has some capital gains.
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He's been buying and selling other projects
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and is sitting on $10,000 in realized profits.
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So he has $20,000 in short term losses
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and $10,000 in short term gains
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at the end of the year.
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First, Jimothy can write off the $10,000 in
gains
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with the $20,000 in losses
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and he'll pay $0 in capital gains
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on that $10,000 in gains.
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Now he has a remaining $10,000
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that he can use to write off
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either against future capital gains
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or $3,000 per year
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against ordinary income.
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And here's where it gets *Bonkers*
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For the sake of simplicity, let's say
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Jimothy's short term capital gains
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and ordinary income tax rate is 22%.
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Because he sold and rebought Jim coin,
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instead of simply holding it.
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He saved $2,200 in tax in the
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first year by being able to write off that
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$10,000 gain, and
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he saves an additional $2,200 in tax
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over the next four years
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by writing off up to $3,000
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per year in ordinary income.
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$4,400 in savings by doing
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nothing but clicking the Sell and Buy button.
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That's it.
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Now, if you're as hyped about this as I am,
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just make sure you click that subscribe button.
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And if you'd like to take this relationship
one step further,
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check out my Patreon linked in the description.
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There you'll find even more content, buy alerts,
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free coaching, daily signals, and a whole
lot more.
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There's a reason why we have 10,000 satisfied
members.
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Now, there are a
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If you've been using tax loss harvesting
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as a strategy, you're likely familiar with
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everything I've discussed so far.
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And because crypto holdings aren't yet
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considered financial securities, they're actually
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a really easy way to stack up
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capital losses before the
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the calendar year is out.
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So double check if you don't live in the US.
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Crypto being the wild animal it is, means
it's
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easier to find opportunities here and there
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to sell at a loss and just reopen that position
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and save money on tax.
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Compare this to stocks or ETFs,
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whose prices change in much smaller increments.
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But it's likely that the way the government
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sees crypto holdings is about to change.
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We're already seeing new regulations like
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the introduction of the $1.2 trillion
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infrastructure package.
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In case you didn't see my breakdown,
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it's estimated that the government will earn
about
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$28 billion in tax revenue
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through crypto alone, and this is due to
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new reporting requirements placed on crypto
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"brokerages" - a term that needs some correction.
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Until we know more,
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And I want to point out that if crypto
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becomes a financial security
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in the eyes of the SEC,
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the added volatility in crypto
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For example, if you decide to close your position
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to harvest a tax loss
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while Bitcoin is at a lower price,
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having to wait 31 days before buying back
in
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could leave you paying a higher price
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for those coins in return.
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However, an interesting workaround that I
found,
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is that ETFs aren't considered
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same or substantially similar to stocks.
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So what you could do if you wanted to lock
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in tax losses is
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Now, of course, your exposure won't be
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the exact same,
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The ETF is different enough
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that the IRS wouldn't consider your losses
artificial.
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And once your 31 day lockout period is over,
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you can choose to either keep the ETF
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or close it to open a position in the
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stock that you originally had.
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Now this is relevant because of the recently
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approved futures ETFs for Bitcoin
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and other cryptocurrencies.
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This could become a popular strategy
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for crypto tax loss harvesting very soon,
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if you haven't used a tax loss harvesting
strategy
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before, bear in mind that the Wash-Sale rule
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makes it so that your spouse or
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a corporation you control can't buy the
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asset for you, and you probably
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shouldn't even have your wife's boyfriend
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buy a stock for you to get past
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that Wash-Sale rule either.
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- The other man,
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Who's the guy?
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Who is it?
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- It's you.
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I'm married.
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I'm the mistress?
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- Now, if you haven't already noticed,
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I've cited the IRS describing the Wash-Sale
rule
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We don't know exactly how these rules will
work
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for crypto yet because they haven't
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been officially recognized as financial securities.
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But let's take a look at some additional loopholes
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in financial securities to help better understand.
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So we already know that
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a stock and an ETF containing a stock
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are not considered to be
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substantially identical investments.
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Well, good news is
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stocks from different companies in the same
industry
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are not considered identical,
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even if they move in the same direction.
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So you can put down a capital loss
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on the sale of some stock in Company A
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while reinvesting that money into Company
B
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without waiting for the Wash-Sale lockout
period
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to expire.
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Also taking things one step further,
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if you sold the preferred stock
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of a company to buy common stock
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in that same company,
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many times that isn't even considered
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substantially similar,
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Some companies' preferred stock does get
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tagged as identical when you can trade between
the
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two without restrictions.
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So it's always best to consult with a
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tax professional if this is part of
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your tax loss harvesting strategy,
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or really any of these situations,
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it's always best to have
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someone look over the numbers for you
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because no two situations are exactly alike.
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So if the Wash-Sale rule does come
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for crypto, we can predict that selling one
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kind of coin or token to buy another
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will not be considered substantially identical
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to another.
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Either way, until we see a rule change here,
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we can use the loose regulations
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to our advantage by selling
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and rebuying any crypto when
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prices drop below our cost basis
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and using that to help our future-selves
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save thousands of dollars.
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Now, there are other ways to save tax
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on crypto gains, like moving to Puerto Rico
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or taking loans out against your position,
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or you can utilize a service like
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my newest sponsor, iTrustCapital.
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With iTrust you can actually place your
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crypto in a Roth retirement account
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and this means you can buy, sell and trade
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to your heart's content and pay no capital
gains
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on your wins, all within this account
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because it's a retirement account.
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This is amazing for traders.
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With a Roth, you pay your tax upfront
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when putting the money in the account
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and then at retirement you pay no tax
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once you start pulling out, at age
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59 and a half years old.
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This is probably the most simple way
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to save on all capital gains tax in crypto.
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iTrust will be linked in the description,
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and if you use that link to open an account,
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you'll receive $100 in free Bitcoin
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just for joining.
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And that's going to do it for today.
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I would like to thank you so much for watching
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and I hope you have a profitable day!
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