Bitcoin (BTC) was such an attractive investment when it was tax-free.
Especially when it was worth almost $20,000. World governments soon put a stop to that party!
The general public is not allowed to make profits without the government getting their cut – you know that!
Government regulations have joined the crypto party – and they haven’t even bought a bottle.
Yes, it’s true. Investors in almost every country are now liable to pay taxes on profits from Bitcoin and other digital currencies. In most states at least.
There are a few ways around the tax system still. Do you want to know how to cash out your bitcoins without paying taxes? Of course, you do.
So here are some tips:
- Low-income earners are not liable for tax
- Bitcoin is tax-free if they are under a set amount (varies from one country to the next)
- Lucky enough to live in a crypto asset tax-free haven
- Purchase IRA with cryptocurrency
- But PPLI with Bitcoin
- Buy tax-free gold with digital tokens
- Sell you Bitcoin over-the-counter
- Move to a tax-free haven
Bitcoin owners, no doubt, think cryptocurrencies should not be taxed.
And in one way they have a point. You purchased you crypto assets with hard-earned money that has already been subjected to income tax, why should it be taxed again?
Government officials don’t see it that way. If they do, the tax man doesn’t care. IRS and the like want your money, and they will get it one way or another.
Most countries, unfortunately, recognise cryptocurrencies as “property” thus is subject to capital gains tax.
Taxing Bitcoin seems somewhat ironic, don’t you think?
Governments don’t recognise cryptocurrencies as legal tender, but government-run tax agencies want some of the profits you make from it anyway.
If you haven’t noticed already, when money is involved, it’s one rule for them – and one rule for them. The public doesn’t get to make the rules.
We vote for other people to make decisions for us. That’s democracy for you!
What Are The Bitcoin Taxes In Europe And America?
Taxes are not payable in every country.
Even some EU countries are off the hook at the moment – although when you hear state officials uttering things like “controlling the currency and taxes” it probably won’t stay that way for long.
In Europe, Bitcoin is not subject to tax. However, that could change once an EU-wide agreement is reached. Germany and France are spearheading the talks. The rest will follow because they don’t have any choice.
Brexit mavericks in the UK are the exception.
HMRC has already decided BTC is an “asset” and is therefore subject to income tax or capital gains tax depending on your circumstances. At one point, BTC was even subject to VAT until HM Treasury realised that was a ridiculous idea.
The amount of tax payable depends on your income – so anything from 20% to 50%.
Investors can also reduce taxable earnings on cryptocurrencies by paying a “gift” to your wife, husband or children, or offering a donation to charity.
Bitcoin owners in the US get stung for capital gains tax too – either short-term capital gain or long-term capital gain rate. Short-term is classed as anything less than a year and is a cash cow for the tax man – investors get milked.
Short-term rates are fleeced from the same tax bracket as your annual salary. The less expensive option is to hold on to your investment for over a year.
Tax is then payable at rates of 0% if below $600, otherwise at 15% or 20% depending on your income.
US President, Donald Trump recently signed new laws that made excludes cryptocurrencies from 1031 exchanges.
These tax loopholes are basically for rich people that want to swap “property” such as a yacht for a villa on the beach. The “I’ll scratch your back tax break” rule does not apply to Bitcoin.
What Are The Banking Regulations On Bitcoin?
Opinion about cryptocurrencies amongst the world’s top bankers is divided.
Mark Carney, the Bank of England chief has cited cryptocurrencies as a “revolution”. The Vice President of Europe’s central bank as compared Bitcoin to the infamous Tulip Bubble of the 17th Century.
One thing all central banks do agree on, however, is that cryptocurrencies need regulation to protect investor assets and stabilise the market.
They are mostly concerned with preventing money laundering and other criminal activities the blockchain can facilitate.
Benoit Coeuré, for example, has warned bitcoin is unstable and linked to tax evasion.
President of Europe’s central bank, Mario Draghi declared digital currencies on the eurozone economy “posed no threat to central banks’ monopoly on money.”
China has claimed full control over cryptocurrencies.
Tax authorities all over the world are clamping down on cryptocurrencies by introducing regulations that ensure traders and investors of Bitcoins and the altcoin brethren are identified. Banks and other distributors of Bitcoin will apply their KYC (Know Your Customer) protocols.
Japan, one of the few countries that have legalised Bitcoin recently began assessing financial institutions to ensure their system protects consumers.
Elsewhere, such as China, South Korea and the US, banks have banned the trading of BTC with credit cards.
How To Hide Bitcoin From IRS?
Investors that attempt to hide Bitcoin from the IRS do so at your risk.
And it’s a pretty pointless task now the US tax agency has invested in specialist software to track transactions of BTC and other cryptocurrencies.
The IRS was prompted to instal the software in 2015 after 802 people declared BTC in their tax returns. That’s probably not an accurate figure. IRS clearly didn’t think so either.
In defence of US taxpayers, they may not have realised BTC was taxable.
They probably do now though. The new laws that came into effect on 1 January mean Bitcoin do not allow stakeholders to be anonymous anymore so IRS can easily track you down.
Therefore, the only viable way of avoiding tax, unless you qualify for nil-tax payments on earnings, is to sell you Bitcoins for cash in hand.
However, this option will only work if you can find a buyer willing to pay. If the amount is over $10,000, you will also have to declare where the money came from to your bank.
Even moving to another country will mean bitcoin holders in the US will have to declare tax on your investment.
So essentially, there is no chance of hiding your Bitcoins from the US tax man. But there are five ways of paying zero tax on BTC.
How To Pay Zero Tax On Bitcoin?
If you live in a jurisdiction that requires you to pay tax on cryptocurrencies, there may still be a way of avoiding the tax man, namely:
- Invest in tax-free gold with digital tokens
- Buy cryptocurrency in your ROTH IRA
- Purchase an international PPLI
- Move to a tax-free country
- Give up US citizenship
Tip 1 – Invest In Tax-Free Gold With Bitcoin
Gold is tax-free, and because of concerns over unbacked cryptocurrencies, precious metal merchants have started offering Bitcoin investors an opportunity to swap your crypto assets for gold or invest in an ICO that is backed by gold.
Buying gold with digital assets has been made easy – as easy as purchasing precious metals with fiat currency in fact.
Gold provides a solid (pardon the pun) solution to swerve the tax man.
Tip 2 – Buy Cryptocurrency In Your ROTH IRA
The easiest way to avoid paying tax on Bitcoin is to purchase your Individual Retirement Account (IRA).
Traditional IRA’s allow investors to defer tax on gains until you start to take distributions. However, if you are eligible for a ROTH IRA, the money you contribute is tax-free.
But, there’s a catch.
A ROTH IRA is only available to employees that do not receive a 401(k) matching contribution from your employer. If you’re self-employed, ROTH is an excellent solution to invest in Bitcoin as a retirement fund.
If you live in the United States, you will also need to move the IRA into an offshore bank account of a limited liability company (LLC) and set up a digital wallet to store your investment.
Tip 3 – Buy Cryptocurrency In Your Life Insurance Policy
The second option may not sound too appealing if you want to enjoy your Bitcoin profits while your alive.
Ever heard of an Offshore Private Placement Life Insurance? All the top tier earners, hedge fund managers and tax haven groupies do it.
The difference between offshore life insurance policies and traditional LIP’s are the latter are taxed.
Offshore PPLI’s, on the other hand, are tax efficient and passed to your heirs without having to pay inheritance tax.
However, like most “elite” investment opportunities, there’s a catch. For anyone intending to invest in an offshore PPLI has to hand over a minimum of $1.5m (sometimes $2.5m) to set up the account.
Tip 4 – Move To a Tax-Free Country
If you have the means, the skills and the qualifications to live and work abroad, you should consider moving to a country that does not charge tax on Bitcoin.
There are a handful of choices – which we have listed later on in the article.
Tip 5 – Give Up Citizenship
The final option, for citizen’s of countries like the US, that cannot escape the taxman in your home country no matter where you live, is to give up your passport and become an expatriate in another country.
Yes, we appreciate it’s a little drastic and not so easy to do. That’s why we’re sneaking it at the end of this article.
The catch with this option is you will have to qualify for citizenship in another country which typically involves you living there for at least 7 years or more, or marrying a native of that country – and somedays you might wish you’d just paid the tax!
Countries With The Best Tax On Cryptocurrency And Bitcoin
At the time of writing, Germany is one of the few member EU-states that do not tax cryptocurrency – after all, it is the historical home of the banking conglomerate.
Bitcoin and other digital currencies are considered “private money” and not considered stock or currency.
Subsequently, trading BTC has tax-free benefits providing the capital gains on your crypto assets does not exceed 600 EUR or the seller has held the investment for over one year.
Hardly a surprise, but Switzerland, the current home of the banking conglomerate, categorises Bitcoin as a “foreign currency” and is there exempt from capital gains tax.
Singapore is another bank-friendly nation and has relaxed tax laws about cryptocurrencies.
As a matter of fact, Singapore has taken a unique view of digital currency and did not class it as a currency or a commodity.
Ordinary taxation laws will tax businesses that use virtual currencies for trading purposes, but individuals are not taxed on profits they make from Bitcoin investments.
Denmark consistently ranks as one of the best country’s to live in the world and has a tax-friendly policy on Bitcoin to boot.
The government in Denmark are actually gearing up to become a cashless economy, so their policies on cryptocurrency are all favourable.
Another tax-friendly haven in Europe is Slovenia.
The government in the eastern European country does not apply capital gains tax on Bitcoin, nor are cryptocurrencies considered as part of an individual’s income – unless your regular income is paid in Bitcoin.
Since 2013, businesses that trade in Bitcoin are subject to corporation tax on transactions involving digital currencies.
Belarus Premier, Alexander Lukashenko legalised cryptocurrencies in December 2017.
Not only that, but he also declared cryptocurrency trading, mining and capital gains are all tax-free under the same manifesto – at least until 2023.
If Europe is too cold, and Singapore is too expensive, head to Puerto Rico.
Although part of US territory, the Central American paradise is a crypto tax haven – even for US citizens who are ordinarily subject to tax on their income worldwide.
Because Puerto Rico is not subject to US Federal Law, they are entitled to create their own tax rules and have aimed an erect middle finger towards the White House and the IRS by allowing US citizens to enjoy a tax-free life and lounge on pristine golden sands.
Are There Reduced Taxes On Bitcoin?
The amount of tax you pay on Bitcoin will typically depend on your income. However, there are economic tactics you can use to reduce the amount of tax you pay.
The best way in most countries is to hold the tokens long-term and share them with your family so you can sell them in a lower tax bracket.
Bitcoin owners in the UK may be able to take advantage of the tax exemption threshold – currently £11,330 a year.
If you withdraw £11,330 before April, and another £11,330 after the 5th April, the capital gains will fall into two separate tax years. Married couples can withdraw £45,200 without having to pay tax.
And while there are some ways to cash out your Bitcoins without paying taxes, the likelihood of that lasting once government regulations tighten is doubtful.
You can try doing it, but there’s a high chance of getting caught and probably not seeing any of your Bitcoin ever again – you might be better off sticking to paying the Bitcoin Tax the regular way.
Disclaimer: Tax avoidance is a criminal offence. Always seek professional, legal advice before redeeming gains in cryptocurrencies.