It’s that time of the year again, Uncle Sam is about to come knocking and shake you down. Taxes are never fun, especially if you are coming off the high of all the crypto gains from the past year. Isn’t the whole point of bitcoin is to be decentralized so nobody can control YOUR money? That’s another conversation for another day. Lets get back to reality. If you own bitcoin or are thinking about investing in bitcoin, let’s go over legal ways for you to avoid paying taxes in the United States.
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Buy Bitcoin In Your 401k
This is an indirect way to own bitcoin. You can buy the Bitcoin Investment Trust stock (ticker GBTC) in most stock brokerage accounts. GBTC is an OTC stock that’s essentially an ETF with one asset. With each share of GBTC you are owning 0.001 bitcoin. So you would need to buy 1,000 shares of GBTC to own a whole bitcoin.
The advantage of buying GBTC over actual bitcoin is that you don’t need to worry about the security issues with bitcoin wallets, and tax reporting is extremely straightforward, any stock brokerage, such as SureTrader, will calculate long term and short term taxes on your GBTC trades just like another other stocks.
To avoid paying taxes legally on GBTC, you just need to find a tax efficient way to own GBTC stock. The most common way is your 401k. Or for the less fortunate, if you had huge carryover capital losses from previous years, you can offset all your future GBTC gains with the carryover losses and not pay taxes on it as well.
Before you buy, we should note that GBTC does trade at a high premium to NAV, trading typically around 60% to 80% premium to the actual price of BTC. That is due to the high liquidity of this stock and the fact that it is extremely low maintenance compared to owning actual bitcoin. As long as planned bitcoin ETF’s do not get approved in the near future, GBTC is the only game in town as far as bitcoin ETFs go, so GBTC should continue to trade at this preimum level until competition arrives.
HODL Your Bitcoin
This is the simplest way to avoid paying taxes. Just HODL! Cryptocurrency is considered a property by the IRS, so just like real estate, if you do not sell, you will not have to pay taxes. When we say HODL, we mean do not touch it at all. Do not spend your bitcoin, do not trade your bitcoin for other coins, and definitely do not sell your bitcoin for fiat. Any trades from your original bitcoin holding will be considered a tax event, so if you traded your bitcoin for ethereum, IRS will consider that as a bitcoin sale and you would have to report your bitcoin profits or losses at that point.
Give Up Your US Passport
This is obviously the most extreme scenario of all. If you do not want to pay the all mighty Uncle Sam, then giving up the United States citizenship might be an option for you. Many celebrities, such as Jet Li and Eduardo Saverin (Facebook co-founder) have chose to renounced their U.S. Citizenship in order to save on their taxes.
To save on your bitcoin gains, there are several countries with favorable cryptocurrency tax rules. Countries like Singapore, Germany, and Denmark are known to be crypto tax safe havens.