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6 Ways to Avoid Capital Gains Tax on Your Bitcoin Transactions

How to Legally Avoid Taxable Gains on Cryptocurrency

Richard Black
Aug 28, 2018 · 7 min read

By Richard Black on ALTCOIN MAGAZINE

It’s been a bumper year for Bitcoin from a peak price of over $19,000 to a subsequent low of less than $6,000 dollars. With many investors looking to cash out, there is growing concerns about tax liabilities from their trading activities.

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What are Taxable Events?

It’s likely that all cryptocurrency transactions will be treated as a taxable event; some being treated as income and others being treated as a capital gain or loss.

  • Coin/Token Exchanges: Exchanging between cryptocurrencies. For example, purchasing Ripple for Bitcoin would be considered a taxable event.
  • Selling Bitcoin for Fiat: When converting cryptocurrency back into fiat (USD or other sovereign currency) this is treated as a taxable event generating a capital gain/loss.
  • Receiving Cryptocurrency (as a payment): If a cryptocurrency is received in exchange for a product or service or a salary/wage (it is treated as ordinary income) the value of the transaction is calculated at the fair market at the time of receipt.
  • Air drops: Treated as ordinary income based on the value of cryptocurrency on the day of the airdrop. Also, at time of exchange there will be a capital gain taxable event.
  • Exchanging Bitcoin for something of value: This is a taxable event and may generate a capital gain or loss.
  • Cryptocurrency Mining: Mining is considered ordinary income (determined by the fair market value on the day the coin/token was mined)

6 Ways to Avoid Capital Gains Tax on Your Cryptocurrency Transactions:

1. Gifting

It’s possible to “gift” (or give away) your cryptocurrency to a friend or family member every year (for a lifetime) without generating a taxable event.

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2. Self Directed IRA

Many smart investors are taking advantage of the trend to use their retirement plans as a vehicle for tax-deferred or tax-free (in the case of a Roth IRA) cryptocurrency investing using their Self-Directed IRA or Solo 401(k).

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3. Offshore Corporation

Another option is to form an offshore IRA LLC and open an international bank account under this structure. The IRC is invested into the offshore LLC which gives you the ability to be the manager of the LLC and all the funds under the account.

4. International Life Insurance Policy

You can also reduce or eliminate capital gains tax by setting up an international life insurance policy (minimum investment of $2.5 million) that will purchase the cryptocurrency.

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5. Become a Resident of Puerto Rico

Dozens or entrepreneurs and cryptocurrency investors have established residency in the Caribbean island of Puerto Rico to take advantage of its beneficial tax system.

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Facebook Co-Founder

6. Give Up US Citizenship

Often considered an option of last resort, you may be surprised to hear that more people than ever are renouncing their US citizenship.

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Source

The IRS is Targeting Crypto

The IRS served a “John Doe” summons (the worst kind) to Coinbase for it’s customer list of investors who have transaction worth more than $20,000 back in 2015.



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Richard Black

Written by

AltcoinInvestor.com | Tech Futurist | Analyst

The Capital

The Capital is a financially incentivized social micro-publishing business platform

Richard Black

Written by

AltcoinInvestor.com | Tech Futurist | Analyst

The Capital

The Capital is a financially incentivized social micro-publishing business platform