It's been a bumpy ride since 2017 with Bitcoin peaking around $19,000 and now sitting around $3,800. Investors are now once again cashing out to pay taxes. It's now time for investors to explore options to avoid taxation on their crypto assets.
Consider these 3 possible solutions to help your decision making:
Self-Directed IRA or Solo 401k
This strategy may be the most attractive and realistic to individuals. Many smart investors are taking advantage of the trend to use their retirement plans as a vehicle for tax-deferred and/or tax-free (in the case of a Roth IRA) cryptocurrency investing using their Self-Directed IRA or Solo 401(k).
IRA's and Solo 401(k)'s both have the option for an individual to contribute to a Roth. And now that crypto markets are down, investors should use this opportunity to not only harvest losses but also transition those assets to a tax-free vehicle. Individuals can max 2018 Roth IRA contributions up to $5,500 (age 50 and over up to $6,500). Individual business owners in 2018 can contribute a maximum of $18,500 for elective Roth deferrals (age 50 and over up to $24,500). Once you've contributed all growth is tax-deferred and tax-free upon withdrawal at age 59 1/2!! No need to file taxes on those assets held in your Roth. I can take years of planning to start shifting assets over to this tax-free vehicle, but think about where a $5,500 contribution in 2016 would be now, tax-free!
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.
In 2018 it is possible to gift up to $15,000 without documenting the transaction. Once the gift exceeds $15,000, a gift tax return will need to be filed, which will then be counted against your lifetime estate tax exemption.
Become a Resident of Puerto Rico
Although this may not be the most realistic for investors, many individuals have made the move to benefit from the capital gains exemption.
Puerto Rico sourced income is considered to be any capital gain or business income earned by a resident of the territory that qualifies for Act 20 or Act 22. More details regarding Act 20 and Act 22 can be found here.
Many entrepreneurs and cryptocurrency investors have established residency in the Caribbean Island of Puerto Rico to take advantage of the beneficial tax system.
To qualify, you would need to be a resident of the territory, which requires spending at least 183 days a year (or more) living on the island.
For help with your crypto taxes visit www.cryptotaxman.us or book a free consult