Four step guide to enable the benefits of crypto tax loss harvesting
Crypto Tax Loss Harvesting
Four step guide to enable the benefits of crypto tax loss harvesting
Tax-loss harvesting is a win-win for crypto exchanges as well as investors.
Tax loss harvesting is an investment strategy where investors sell assets at a loss to offset other capital gains. With an asset like crypto—where the price can fluctuate significantly throughout the year—it’s most efficient to take advantage of market dips, but you need to act now for your investors to use this strategy.

By offering tax loss harvesting, exchanges have the opportunity to increase trading volume and provide a massive value add for their users, while investors have the potential to decrease their tax liability and free up more money to re-invest.

Here’s a four-step process to enable crypto tax loss harvesting
- Identify Potential Losses: Investors need to review their crypto portfolio and easily identify investments that have lost value.

- Sell Underperforming Investments: Identify investments that have lost value. The sale generates a capital loss, which is the difference between the original purchase price and the selling price.
- Investors have multiple ways to take advantage of capital losses to reduce their tax bill in the current or even future tax years:
- Offset Capital Gains: The realized loss in value from step 2 can be used to offset any capital gains that the investor has incurred. Capital gains are profits made from selling investments at a higher price than their purchase price.
- Utilize Losses Against Ordinary Income: If the total capital losses exceed the capital gains in a given tax year, excess loss can be used to offset other taxable income up to a certain limit (usually $3,000 for individuals in the United States).
- Carry Forward Unused Losses: If the capital losses exceed capital gains and the allowable offset against ordinary income, the remaining losses can be carried forward to future tax years. This allows investors to continue to utilize those losses to offset gains and income in future years, providing tax benefits over the long term.
- Wash Sale Rules: Crypto investments are unique because they do not currently have any wash sale rules. Investors can capitalize on fluctuations in the market by selling an investment and immediately buying it back for their portfolio. Traditional equities rules prevent investors from repurchasing the same or substantially identical securities within 30 days before or after the sale that generated the capital loss. Individual investors can reference our Guide to Crypto Tax Loss Harvesting.

How TaxBit can Help
TaxBit is paving the way for businesses to streamline and automate their tax compliance processes while at the same time reducing operational risks and manual error-prone processes that weigh down too many organizations.
TaxBit enables Tax Loss Harvesting via our tax center APIs by aggregating and automating real-time inventory, cost basis calculations, and current market prices – surfacing real-time tax savings opportunities for your users. Our platform enables a single system of record to unlock scalable tax compliance that meets your business needs and complies with an ever-changing regulatory landscape. Reduce the burden on your internal teams and customers with a best-in-class experience.
Learn more about what TaxBit can do for your business today.