Tax season is approaching, and with only a small portion of 2025 remaining, investors should now review tax and accounting strategies that support their overall financial health. In December, a slight adjustment can mean significant benefits. As cryptocurrency investing continues to gain traction among retail investors in recent years, cryptocurrency tax reports and the calculated tax strategies that accompany them should not be overlooked.
Just like the stock market, cryptocurrency markets can experience declines, but at a much faster rate. Recently, cryptocurrency markets have seen a decline, which is naturally causing investors to panic.
However, amidst this broader market uncertainty lies a not-so-hidden opportunity: Investors can use these losses to their advantage to harvest tax losses, a strategy to support the reduction of an individual’s taxable income. It allows investors to use losing positions to offset capital gains. While the discussion around year-end tax loss harvesting is neither novel nor unique to cryptocurrencies, the inherent complexities of digital assets, the rapid pace of cryptocurrency movement, and fragmentation across exchanges, wallets, and more add a layer of confusion about how best to approach this tax strategy.
If you are a cryptocurrency investor wondering how to approach cryptocurrency tax-loss harvesting, below you will find key considerations and tips on how to navigate tax-loss harvesting within the digital asset space.
Identify your losses and review profitable assets
Before you start tax loss harvesting, it is essential to have visibility into all relevant digital asset accounts and wallets. Next, people should look for assets that are currently trading below cost basis (the amount paid for an investment or asset, plus fees). In this step, an individual can determine which digital assets they can sell to generate a realized loss that offsets capital gains or reduces taxable income.
When carrying out a review, it is of utmost importance to ensure that the accounts are accurate, meaning that each and every cost basis is accurate. All calculations depend on the accuracy of the accounts, and a single error can limit the ability to properly measure profits and losses.
Investors should not feel alone in going through the identification process; Some tools can help identify which assets to sell and how much.
sell the assets
Once assets are identified, investors must act to liquidate them by converting them into cash or exchanging them for another cryptocurrency. This is where tax loss harvesting will occur, as the sale that occurs is what triggers the loss for tax purposes.
Reinvest with confidence
If looking to maintain portfolio composition, any digital assets sold can be purchased immediately to keep long-term investment plans on track. Unlike stocks, cryptocurrencies do not have a wash sales rule, meaning there is no waiting period to buy back the same asset after it is sold.
That said, this is not a loophole to generate false losses by constantly selling underwater crypto assets and immediately buying them back (transactions without economic substance).
Additional Consideration
Tax-loss harvesting can be useful for cryptocurrency traders, but keep in mind that it generally benefits high-income earners more. Those in higher tax brackets can offset gains that would otherwise be taxed at higher rates with the losses they make.
Smarter Approach to Crypto Tax Filing
Cryptocurrencies are inherently complex due to their decentralization. Complexity can leave investors paralyzed: fear of making a wrong move often leads to no step at all. It’s an understandable situation, but investors should be aware that a tax-loss harvesting strategy can be completed at any time when the market value of their asset falls below the original purchase price, known as its cost basis. Additionally, the year-end tax review can be a trigger to reassess assets and make strategic tax decisions. Both points are currently converging, making it a specifically opportune time to review tax loss harvesting and enter 2026 on a more secure financial footing.
Thinking ahead to 2026
While tax collection should be a priority before the end of the year, cryptocurrency traders should be vigilant as we enter tax season. The IRS and government agencies are looking to standardize digital asset reporting, and the 2025 tax return will be different than previous years. Investors will receive Form 1099-DA from cryptocurrency brokers, similar to the 1099-B forms they receive for stocks. Investors should be aware of costly blind spots, as brokers are currently not required to calculate cost basis, but individuals must report this information on their own tax returns. While cryptocurrency brokers will provide the forms, investors are responsible for correctly calculating their cost basis, holding period, and actual profits/losses.
Tracking crypto activity will go a long way toward ensuring a smooth tax season and provide the ability to unlock smarter tax strategies. As cryptocurrencies move from the Wild West to a more regulated asset class, accurate reporting is key to optimizing your tax situation throughout the year and avoiding leaving money on the table due to overlooked losses or misclassified transactions.
