Portfolio in the red? How tax-loss harvesting can help stem the pain

cointelegraph.com:

Crypto investors — particularly those that bought in toward the top of the market in 2021 — may be able to find some salvation through a tax-saving strategy called “loss harvesting” according to Koinly’s head of tax. 

Koinly is one of the most widely-used crypto tax accounting firms online. Head of tax Danny Talwar told Cointelegraph that while most retail investors are aware of their obligation to pay capital gain taxes (CGT) when they make profits, many are unaware that the opposite holds true and that losses can be used to reduce their overall tax bill by offsetting capital gains elsewhere.

Loss harvesting, also known as tax-loss harvesting or tax-loss selling is an investment strategy where investors either sell, swap, spend or even gift an asset that has fallen into the red — also known as making a “disposal” — allowing them to “realize a loss.” Investors typically do it in the final weeks of the tax year — which in Australia is right now. Talwar notes the strategy works in many jurisdictions with similar CGT laws, including the US.

“Countries like the U.K., U.S. Canada, follow very similar capital gains tax regimes to Australia or have a kind of loss harvesting,” he said.

The concept is also embraced by traditional investors in stocks, bonds, and other financial instruments. In the crypto world, a loss can be realized by converting it to fiat, or just trading for another crypto token on the exchange.

Talwar believes that the surge of new crypto investors over the last few years will likely have produced quite a number of loss-making portfolios given the current bear market.

Talwar noted there are specific nuances in each country’s tax regime such as the treatment of “wash-sales” which could impact an investor’s