The crypto world was taken by storm with the latest events surrounding the bankruptcy of FTX, leading its token to crash from $25 to the $1 range.
Beyond the bankruptcy, many other reports suggest that the exchange got hacked, deposited funds from investors were stolen, and potential criminal activity.
Let’s cover the impact of these events on crypto taxes if you used FTX this year.
How to calculate crypto losses from FTX?
Let’s imagine that you bought $900 worth of FTT at $30/token (30 tokens) in total, and FTT is now worth $1.5/token.
This means that if you bought $900 of FTT (30 tokens) and now sell it for $45 (30 tokens x $1.5), you will have an $855 capital loss.
When you import your FTX trades into crypto tax software like CoinTracking, we calculate the gains/losses on each trade and enable you to generate tax reports with that information.
Can you write off crypto losses from FTX?
Can you deduct your crypto losses from the major FTX’s token price decline?
If you have other capital gains from trading throughout 2022, you might be able to reduce your capital gains by realizing losses from FTT by crypto tax loss harvesting.
What is crypto tax loss harvesting?
Crypto tax loss harvesting is when an investor realizes a capital loss on a trade, usually around the end of the year, and deducts that loss for the tax year.
If you have more capital gains than losses, you can reduce your capital gains by realizing that loss, effectively reducing your crypto taxes.
Do I still need to report my crypto losses from FTX?
Yes. If you have losses/gains from trades on FTX this year, you’ll need to track them and include them in the right tax forms to report to the IRS.
First, you need to import your trades from FTX. Then, CoinTracking will determine your capital gains/losses, and you can generate tax reports.
In the US, you need to include crypto gains/losses on Form 8949 and Schedule D of your Form 1040. Learn how to report crypto on taxes.
How to track FTX trades with CoinTracking?
If you traded crypto on FTX during 2022, you would have to report it on your tax return to be filed in 2023. You should always keep updated records of your transactions. Otherwise, you can misreport your crypto or be taxed at a higher rate (short-term capital gains tax rate) because you can’t prove the holding period of your gains.
Moreover, given the volatility of the crypto industry, as seen from the FTX case, it is prudent to frequently import your trades from exchanges into crypto tax software like CoinTracking since websites can become no longer available, with malware, etc.
Fortunately, CoinTracking has an API importer from FTX to enable you to easily track your FTX trades. Here’s how to do it:
- Log in to your FTX or FTX.US account and go to “profile”
- Scroll down to the API Keys section
- Press CREATE READ-ONLY API KEY
- Copy your API Key and API Secret here
- If you want to import only transactions from one of your subaccounts, input its name into the “Sub-Account Name (optional)” field and disable the “All subaccounts” slider below
- Your trades will import automatically
Can I deduct crypto losses from the FTX hack?
News reports suggest that after FTX’s bankruptcy, there could have been a hack, stealing almost $500M of funds from users.
If you’re one of the investors who lost funds from FTX, we have discouraging news.
In the US, you won’t be able to claim a tax loss from hacks on crypto exchanges like FTX.US or others. Those losses from hacks/stolen crypto are considered personal casualty losses and are no longer deductible in the US.
Do I need to report hacked crypto from FTX?
No. If you lost funds from a hack on FTX or other exchanges, there’s no tax obligation to report that crypto in your tax return.
The best crypto tax software: CoinTracking
The best crypto tax software in the market is CoinTracking.
You can import your trades using CSV or API, track your gains/losses, and generate tax reports according to your preferred accounting method.
CoinTracking is your full crypto tax solution for:
Moreover, CoinTracking can easily classify all your earnings from yield farming, liquidity pools, crypto staking, and much more.
Crypto taxes with no errors: CoinTracking Full Service in the US.
CoinTracking also offers a Full Service for US traders. A crypto reconciliation tax expert from Polygon Advisory Group, a leading US crypto tax firm, will review your CoinTracking account, help fix any errors, and ensure you submit your crypto tax reports error-free.
This post is part of the Crypto Taxes AMA series. Follow our weekly AMAs on Twitter where our expert CPA, Sharon Yip answers your crypto tax questions. You can download 35+ AMA crypto tax reports for free.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.