Tax season is approaching, and with only a sliver of 2025 remaining, investors now need to revisit tax and accounting strategies that support their overall financial health. In December, a small adjustment can mean significant benefits. With crypto investments continuing to gain traction among retail investors over the past few years, crypto tax reporting and accompanying calculated tax strategies should not be overlooked.
Much like the stock market, crypto markets can experience downturns, but at a much faster pace. Recently, the crypto markets have experienced a decline, which naturally causes investors to panic.
But amid this broader market uncertainty lies a not-so-hidden opportunity: investors may be able to use these losses to their advantage for tax-loss harvesting — a strategy to support lowering an individual’s taxable income. It allows investors to use losing positions to offset capital gains. While the year-end tax loss harvesting discussion is not new or unique to crypto, the inherent complexity of digital assets, the rapid pace of the crypto movement, and the fragmentation across exchanges, wallets, and more add a layer of confusion about how best to approach this tax strategy.
If you are a crypto investor wondering how to approach crypto tax loss harvesting, below are key considerations and tips on how to navigate tax loss harvesting in the digital asset space.
Identify your losses and review harvestable assets
Before tax loss harvesting begins, it is important to have visibility into all relevant digital asset accounts and wallets. Next, individuals should look for assets that are currently trading below the cost basis (the amount paid for an investment or asset plus any fees). In this step, a person can determine which digital assets they can sell to generate a realized loss that offsets capital gains or reduces taxable income.
When conducting a review, it is of the utmost importance to ensure that the accounts are correct, which means that any cost basis is correct. All calculations depend on the accuracy of the accounts, and a single error can limit the ability to accurately measure gains and losses.
Investors should not feel alone in navigating the identification process; some tools can help identify which assets to sell and for how much.
Sell the assets
Once the assets are identified, investors should act to liquidate them by either converting them to cash or exchanging them for another cryptocurrency. This is where the tax loss harvesting will be realized, as the sale that takes place is what activates the loss for tax purposes.
Reinvest with confidence
If you want to maintain portfolio composition, any digital asset sold can be bought immediately to keep long-term investment plans on track. Unlike stocks, crypto does not have a wash sale 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 cryptoassets and buying them back immediately (transactions without financial substance).
Additional considerations
Tax loss harvesting can be useful for crypto traders, but keep in mind that it generally benefits high income individuals the most. Those in higher tax brackets can offset gains that would otherwise be taxed at higher rates against the losses they realize.
Smarter approach to reporting crypto tax
Crypto is inherently complex due to its decentralization. The complexity can leave investors paralyzed: the fear of making the wrong move often leads them to make no moves at all. It’s an understandable situation, but investors should be aware that a tax loss harvesting strategy can be implemented any time the market value of your asset falls below the original purchase price, known as its cost basis. In addition, the year-end tax review can be a trigger to reassess assets and make strategic tax decisions. Both of these points are currently converging, making it a particularly opportune time to revisit tax loss harvesting and enter 2026 on a more confident economic footing.
Thinking ahead to 2026
While tax collection should be at its peak before the end of the year, crypto traders need to be alert as we head into tax season. The IRS and government agencies are looking to standardize digital asset reporting, and the 2025 tax return will differ from previous years. Investors will receive form 1099-DA from crypto brokers, similar to the 1099-B forms they receive for stocks. Investors should be aware of expensive blind spots, as brokers are currently not required to calculate the cost basis, but individuals are required to report this information in their own tax filings. While crypto brokerages will provide the forms, investors are responsible for correctly calculating their cost basis, holding period and actual gains/losses.
Keeping track of crypto activity will carry massive weight in ensuring a smooth tax season and offers the opportunity to unlock smarter tax strategies. As crypto moves from the Wild West to a more regulated asset class, accurate reporting is key to optimizing your year-round tax position and avoiding leaving money on the table due to overlooked losses or misclassified transactions.
