If you’re a single filer earning under $40,400, or a married couple making under $80,800, you have a 0% capital gains rate for any sale of a cryptocurrency that’s been held for at least a year (long-term capital gains).

Now, if you sell a cryptocurrency at a loss, you can claim a capital loss deduction. If your yearly annual loses exceed yearly annual gains, you can deduct up to $3,300 per year. Any excessive losses beyond that can be carried over to future tax years.

The same logic applies to paychecks. If you receive payment in bitcoin or any other cryptocurrency, it’s counted as ordinary income.

If you’re an independent contractor and receive payment in the form of cryptocurrency, it will count as self-employment income.

The IRS ask specifically about cryptocurrency transactions on the first page of the 1040 this year. You have to mark “yes” if you received any cryptocurrency, purchased a cryptocurrency, traded a cryptocurrency, spent a cryptocurrency, etc. By checking “yes” on the 1040 form you’re acknowledging you had some sort of financial transaction with a cryptocurrency – but this doesn’t mean you will necessarily be taxed. You’re only taxed if you sold cryptocurrencies for a profit. If you simply bought a cryptocurrency and held it, without exchanging it for another cryptocurrency or selling it, then you are not taxed. It’s no different from a stock in that respect.

Contrary to above, you can check “no” regarding the IRS’ question on the 1040 form if you did have cryptocurrency transactions, but did not have a taxable event such as selling cryptocurrencies or receiving cryptocurrency in the form of payment. If you simply bought and held or transferred a cryptocurrency between wallets, there is no taxable event.

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The answer is no on both counts. I spent all morning pouring through various websites, blogs, and forums to see if anyone called this – because that would have been incredibly impressive and I’d assume they have some sort of insider information or even more likely, that they themselves were behind the crash.
But alas, there was nothing. In fact, quite the opposite. On forums like Reddit, SeekingAlpha, websites such as CoinDesk, CryptoQuant, and others, they were all blindsided. Prior to the sell-off, they were all echoing one another saying how they were bullish on cryptos and that the price would continue it’s upward trajectory.
After the sell-off had begun, everyone was calling this a small “dip”. There was a select few folks who called this a “minor correction” but the overwhelming response to the initial sell-off was that this was a small “dip” and they all recommended folks to continue holding their coin.

I take issue with that because in all of cryptocurrencies history, especially dating back to 2017 when we had the first large crash, folks will rush to the chats, Discord, Reddit, blogosphere, and other places to preach, shout, and spam “HOLD! Continue hodling hodlers!”
Why?
Why tell others to continue holding in the midst of a crash while subsequently calling it a “dip”?
My gripe here is that these folks, and in fact, all folks, do not understand the crypto markets. They panic when seeing the markets decline and their holdings whither away into a meek pile of what they originally believed was pure gold (“It’s gold Jerry, pure gold!).

Don’t listen to them – it’s froth. These folks are panicking and seeking to reassure themselves that things will be alright by hearing from others that agree with them – an echochamber.

The fact is, no one understands crypto markets any more than one can acknowledge that they make less sense than the stock market. And that’s fine. A whale, or large firm may sell off thousands of Bitcoin at any given moment leading to a crash that cascades as stop-losses are reached in hodlers’ accounts and folks panic sell. This is fine.

But don’t hold in the midst of a crash. If you’re losing money, and scared about what may happen over the next hour, sell. Save yourself both the stress of hodling and your wallet. You can still believe that cryptocurrencies, blockchain, and decentralized finance is the future, while selling your holdings. Just buy back in once the crash subsides and prices stabilize.

I’ve heard from a few dozen folks who disagree with me and think we all should just be holding and only adding to our accounts and I cannot stress enough how unwise this is. Cut your losses and buy back in at deflated prices.

As I write this, both the crypto markets and stocks are rising! It’s a new day traders!

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