When you invest in cryptocurrency, it's important to understand how to handle the potential losses on your tax return. Losses incurred from cryptocurrency investments can be reported as capital losses on Schedule D of your IRS Form 1040. This allows you to offset any capital gains you may have realized from other investments, which can significantly reduce your overall taxable income.

For example, if you made a profit from the sale of stocks but incurred losses from your cryptocurrency trades, you can use those losses to lower the amount of capital gains tax you owe. If your total capital