By Wise Advice Team on October 30, 2022

The Current Problem With Crypto

To say the cryptocurrency market has been volatile recently is putting it mildly. 

In just a short timeframe prices soared, But, have more recently dropped significantly. 

The crypto crash has led to most portfolios being worth just a fraction of their former glory and speculation is that some of the smaller cryptocurrencies may not be in operation for much longer.

It has also created major tax implications for some investors.

So, what can you do if you are one of the people suffering crypto woes right now?

Well, the first thing is to keep calm and call a crypto tax expert.

That’s us, the team here at Wise Advice. We’ve put together our best wise advice for crypto investors looking to ride out the wave right now.

Crypto Highs And Crypto Lows

For investors, the rollercoaster of crypto highs and crypto lows has provided some interesting results. In the past tax year, when prices were soaring, you might have made a decent profit when selling your cryptocurrency or exchanging it for another type. This will have lead to you incurring a reasonable tax bill.

The past few months in contrast, have been considerably less cheerful. The market has crashed with even established currencies like Bitcoin losing their value. Coming at the same time as economic problems in the general market - rising interest rates, price hikes and a possible recession - and it feels like this could be a bigger issue.

So, is now the right time to buy, when the prices are low? This is known as buying the dip, where investors buy low in the hope that values will go back up soon. But one of the problems with crypto at the moment is that no one quite knows if values will go back up, especially not to the levels seen in the last year or so.

So, now might actually be a good time to reconsider your crypto investments and whether it would be a good idea to convert some or all of them back into cash. You may decide that cashing out your smaller currencies could be a good place to start - in case these do not recover as well as more established currencies like Bitcoin and Ethereum. 

Paying Tax On Your Crypto Assets

You can’t avoid paying tax on your crypto assets. Cryptocurrency is treated like property by IRD so you will pay tax on it when you sell, trade or dispose of crypto and make a gain. This could be cashing it out for real money or when you swap one currency for another.

Working out how much tax you need to pay can be a bit complicated as it depends on when you sell and how. It also depends on how much you sold your currency for compared to its initial value when you bought. You can assume you bought and sold in the same order or assume an average cost and sale price across all your transactions.

Assessing profits

If the value of your cryptocurrency went up in the last year and you made a profit, but then it fell again and some of your profit disappeared, will you still need to pay tax? Well, it depends on how much you paid when you originally bought it. 

If you are still making a profit of some sort when you come to sell, then you will pay tax on that amount (not on the profit or the loss from its highest value). However if you bought very high and then the price drops and you actually make a loss, then the loss will be deductible from your tax bill.

What about the tax bill?

If you made huge profits when the market was surging in the last year or so, then you are probably facing a fairly large tax bill. 

Selling some of your crypto holdings now while prices are lower, can help you free up cash to pay that tax bill. It may also have the benefit of keeping your bill lower for the current tax year, as you will be unlikely to be making as much profit. In fact, you may even make a loss which will then be deductible in the coming tax year.

Need Help Navigating Crypto’s Choppy Waters?

Whether you were an early crypto adopter or you’ve just dipped your toes in the crypto market, you need someone on your side who can help you navigate the ups and downs. 

Our specialist crypto team are here to help. We can make sure you are compliant with all your tax requirements and offer expert advice to help you make the most of your investment. And because crypto currencies can be volatile, we have partnered with CoinTracking, one of the most accurate crypto tracking and analysis options available.

Give us a call to discuss your options.

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Published by Wise Advice Team October 30, 2022