In the world of cryptocurrency, everyone is seeking to make it big in crypto space; after succeeding in doing so, one has to deal with taxes and consequently with law enforcing authorities, regulators and various regulations regarding the tax. In order to pay next to zero taxes on the Bitcoin gains, there are several practical tips that could help.
Firstly, by giving digital currency to some family member or friend, one can address this issue of tax. It is worth noting that in 2014 Internal Revenue Service of the United States declared that digital currencies are recognized as properties and assets and therefore, are subject to be taxed. Furthermore, the IRS in 2018 allowed Americans to offer a gift that is up to fifteen thousand dollars without any transaction proof documented. So, when the recipient decides to cash out, the value of the tax depends on the market value of the day.
Secondly, based on the law, retirement accounts can store, sell or buy digital currencies. So, putting one’s cryptocurrency gains into a 401k, or some retirement plan is one of the best options to avoid taxes on one’s gain in cryptocurrency. By employing this method either the taxes are deferred till the distribution of the retirement account, or it ultimately falls off, if the account is Roth IRA, which is tax-free.
Thirdly, by creating an offshore life insurance policy that does not require any money, one can avoid paying taxes on the cryptocurrency gains. Though this method is not used much and infact is not an easy option either, but this tends to reduce one’s capital gains taxes in the long run.
Fourthly, Puerto Rico is considered a heaven for crypto investors, as the country has a very friendly tax system. Moving to Puerto Rico is yet another way to avoid taxes on the cryptocurrency gains. It is worth to note that one is required to spend only one hundred and eighty-three days of the year to become a resident of Puerto Rico.
Lastly, by renouncing one’s U.S citizenship, one can get exempted from paying taxes on the cryptocurrency gains. Although it seems very drastic, it surely gives one the freedom to avoid giving taxes on cryptocurrency gains. Thorough considerations should be given before taking any decisions. Furthermore, one may need to have a second passport as well before taking any such step.