Tax season is approaching, and with only a sliver of 2025 left, investors must now revisit tax and accounting strategies that support their overall financial health. In December, a slight adjustment can mean significant benefits. With crypto investing 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 quicker pace. Recently, the crypto markets have experienced a slump, which is naturally causing investors to panic.
Yet 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 discussion about tax loss harvesting at year-end is not novel or unique to crypto, the inherent complexities of digital assets, the rapid pace of 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’re a crypto investor asking yourself how to approach crypto tax loss harvesting, below are key considerations and tips on how to navigate tax loss harvesting within the digital assets space.
Identify your losses and review harvestable assets
Before commencing tax loss harvesting, it is essential 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, an individual 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 accounts are accurate, meaning that any and all cost basis are accurate. All calculations depend on the accuracy of the accounts, and a single error can limit the ability to measure gains and losses properly.
Investors should not feel alone in navigating the identification process; some tools can help to identify which assets to sell and how much.
Sell the assets
Once the assets are identified, investors should act to liquidate them by either converting them to cash or swapping them for another cryptocurrency. This is where tax loss harvesting will be realized, as the sale that occurs is what activates the loss for tax purposes.
Reinvest confidently
If looking to maintain portfolio composition, any digital asset sold can be purchased right away to keep long-term investment plans on track. Unlike stocks, crypto does not have a wash sales rule, meaning there is no waiting period to buy back the same asset after it is sold.
That said, this is not a loophole for generating fake losses by constantly selling underwater crypto assets and repurchasing them right away (transactions with no economic substance).
Additional consideration
Tax loss harvesting can be useful for crypto traders but keep in mind that it generally benefits high-income individuals the most. Those with higher tax brackets can offset gains that would otherwise be taxed at higher rates, with the losses they realize.
Smarter approach to crypto tax reporting
Crypto is inherently complex due to its decentralization. The intricacy can leave investors paralyzed: the fear of making the wrong move often leads to making no moves at all. It’s an understandable situation, but investors should be aware that a tax loss harvesting strategy can be completed at any time when the market value of your asset drops below the original purchase price, known as its cost basis. Additionally, year-end tax review can be a trigger to reevaluate assets and make strategic tax decisions. Both these points are currently converging, making it a specifically opportune time to revisit tax-loss harvesting and enter 2026 on more confident financial footing.
Thinking ahead for 2026
While tax harvesting should be top of mind before year-end, crypto traders need to be alert as we enter tax season. The IRS and government agencies look to standardize digital assets reporting, and the 2025 tax filing will differ from previous years. Investors will receive the Form 1099-DA from crypto brokers, similar to the 1099-B forms they receive for stocks. Investors need to be aware of costly blind spots as brokers are not currently required to calculate 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 computing 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 provides the ability 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 tax position year-round and avoiding leaving money on the table due to overlooked losses or misclassified transactions.
