The last two years have brought a lot of popularity to cryptocurrencies, and the awareness of them has surged like never before in the previous decade of their existence. Countless investors started flooding the crypto market, and the coins' value grew as a result, which only served to attract new would-be investors. The prices were high, and the market flourished.

Despite the fact that the situation has changed dramatically since then, one fact still remains — crypto investors and traders still need to pay taxes on their earnings. Fortunately for them, there is one piece of good news regarding this situation, and that is that any losses that were experienced due to the bearish trend of the market in 2018 can still be placed in a lower tax bracket. In fact, claiming losses is easier than many people believe.

In the US, as well as many other countries around the world, cryptocurrencies are currently classified as assets. This means that each crypto-based transaction can only fall into one of only two categories — capital loss or capital gain.

When it comes to capital gain, it happens when an individual sells cryptocurrency for a higher amount than they originally paid for it. As for the capital loss, it occurs when traders sell certain coins and tokens at a lower price than they had when they were bought. In both cases, assets need to be sold first, in order to trigger taxable loss or gain. If the losses end up being big enough, you may be able to use this situation to enter a lower tax bracket.

Claiming a loss does have some benefits to it, as traders can use them for offsetting income that was gained from another source or sources. Those losses that are not used can be deducted from other kinds of income and can be carried over to the next year. This is how things work in the stock market, according to an article posted by The New York Times, and the situation is currently the same for cryptocurrencies.

When it comes to the US, the IRS allows citizens to deduct net capital losses only to a certain limit, which is $3,000 per year. This amount can be deducted from the amount that individuals earn at their regular day jobs. If they lose more than $3,000, they can get another deduction when filing taxes next year.

Those who are making over $50,000 per year, the loss of $3,000 can place them in the lower tax bracket, which might result in tax savings worth thousands of dollars. Not only that, but those who earn income through stocks or property sale can basically have no limit to the amount that they can deduct. It is possible to achieve even more tax savings for those who are widowed, or even married but filing jointly.

Similarly to traders and investors, crypto miners can reach lower tax brackets through deductions as well. This was confirmed by the IRS notice posted in March 2014, that claims that when taxpayers mine cryptocurrencies, the market value of the coins at the time is includible in gross income.

However, if the coin's value drops, and miner decides to sell, then they have automatically triggered a capital loss which can then be reported, as explained earlier. Furthermore, the IRS analysts even disclosed that costs of electricity and other expenses can be written off. Not only that, but those who mine cryptocurrencies continuously with the expectation of profit may, in fact, qualify for taking the Section 179 deduction, which also allows them to write off the cost of the mining rigs that they had to buy to engage in the mining process.

The difficult part comes when investors need to calculate their earnings, especially if they were not careful enough to keep track of their trading. The same is true for those who have placed large amounts of trade orders in the previous year.

Calculating losses and earnings will require access to special tax tools, otherwise, it is nearly impossible to calculate how much coins were worth at the time when they were purchased. However, such tools are already available and can be obtained from TaxACT, TurboTax, CSV, and other providers. With them, you can import data regarding your transactions from your crypto wallets or exchange accounts.

Finally, you can also download the IRS form 8949 which can be used for submitting reports of your losses.

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