A step by step guide to end of the year tax optimization

End of the year – last chance to check your portfolio and optimize taxes

Save yourself some real money at the end of the year. Now is the time for savvy crypto traders to analyze their portfolio and optimize it for tax purposes. We built the unrealized gains feature to show on a simple single page how you can optimize your portfolio.

There is nothing certain but death and taxes. Benjamin Franklin who coined this quip did not own crypto assets and couldn’t know that every crypto sale is different. Some are taxable and some are not. Did you own it longer than a year? Some jurisdictions allow reduced tax rates for long-term holders or even tax-free gains.

You can use this to your advantage. Plan to sell your Polka Dots with a great bull-run gain? Maybe wait a few days until it becomes tax free. Or even smarter: you also had some losses with Shiba Inu (it’s always too late). Get rid of the dog coin and offset these losses with the gains from Polka.

The tax rule is fair. You incur taxes with gains, but you can reduce them with losses. What sounds pretty simple in theory can be quite cumbersome in practice. You’d need to remember all your trades, calculate the holding period, the taxable gains, and the offsetting losses. We tried and found it impossible.

This experience motivated us to create a tool within cryptotax that shows on a single, simple page how you can optimize your crypto taxes. We gave it the somewhat unwieldy title “unrealized gains feature “(UGF). Here is how you can use it to manage your portfolio like a pro.

Manage your portfolio

Import transactions
Log in to your Blockpit account and navigate to the Unrealized Gains tab.

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A step by step guide to end of the year tax optimization 1

You will see a list of all tranches and holding periods sorted by coin or depot.

Help UGF to help you

Like every other software, the unrealized gains feature can only calculate based on your input.
Please, be nice to UGF, import all your transactions in all your depots, link them, and you are good to go.

How to set up your depot

Next, let’s take a look at the benefits that you can reap at a first glance.

Long-term capital gains and tax-free asset sales

German taxpayers can take special advantage of tax-free returns after a one-year holding period. Also in Austria, so-called “Altbestand” (coins and tokens acquired before 01.03.2021) as well as NFTs can be sold tax-free after the expiry of the holding period.
U.S. users benefit from a lower long-term capital gains tax after holding crypto assets a year or more.

What does that mean for you?
To benefit from the tax advantages available to you, you have to know your assets.

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A step by step guide to end of the year tax optimization 2

Let’s take a look at IOTA.
In this example, we have 1,361.75 IOTA, all of them in the Bitpanda Pro Depot and 966.75 IOTA we held more than one year already.
This means we could sell 966.75 IOTA from our Bitpanda Pro Depot tax favourably or tax-free. Depending on the country of tax residence.

What is the advantage of this function? It prevents you from short-changing yourself by selling tranches that are unfavourable for tax purposes. You always know exactly which assets to sell in which depot to achieve a favourable result.

But wait, that’s not to all.
It is about to get juicy.

Optimizing your tax position

Savvy investors use a smart strategy to optimize their tax position. If you made a loss, you might as well realize it and benefit from it if you can. Now is the time to do that. Crypto trading losses you incurred can be offset against your gains.

Offsetting losses against current gains applies to U.S., Germany, Austria and Spain.
n Austria and Germany, losses have to be realized within the yearly holding period.

Are you still with us?
This is important.

Remember that you only realize the loss of an asset when you actually dispose of it.

To realize losses, you have to know in which depot to find them.

In this example, we hold IOTA in our Kraken and in our Bitpanda Pro Depot.
The IOTA in our Bitpanda Pro Depot shows a negative unrealized gain of -27,04 €.
We can use them to optimize our tax position.

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A step by step guide to end of the year tax optimization 3

We can sell 165 IOTA at -27,04 €, thus turn the unrealized negative gain into a loss and reduce our tax position.

To learn more, visit the Blockpit help center.
How do I identify unrealized gains and losses?

Would Mr. Franklin be impressed? I bet he would be.

Let’s summarize this

There are legal ways to optimize your tax position.
When you know your portfolio positions you can optimize your taxes.

Benefits

The unrealized gains feature shows:

  • A complete history of your holdings
  • per asset
  • per depot
  • At one glance, you see the coins in the corresponding depot that you can sell tax-free or tax favourably.
  • You see negative unrealized gains and the coins to sell to realize a loss to optimize your tax position.


Ready to optimize?

Log into your account here.
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Do you need help with your crypto tax for Bitcoin & Co?
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Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations, we recommend contacting a certified legal advisor in the respective country. If any questions occur, feel free to contact us on our social media channels.

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