There’s an old saying – “It’s not what you make; it’s what you keep.”

Two steps forward, one step back

Crypto traders love the opportunities the cryptocurrency market provides, mainly due to its volatility.  What traders don’t love, or anyone else for that matter, is paying taxes on their gains. Not to mention the complexities of tracking all their trades.

Everyone knows we have to pay taxes, but to have to pay the IRS short-term capital gains on all trades not held for at least one year is steep. The IRS taxes these types of gains as regular income, so depending on what tax bracket and state you live in could, you could be taxed upwards of 50%.

What that also does, other than the feeling of being gut-punched, is it drastically reduces your available funds to trade and build more wealth. Every year you have to hand over a large chunk of your money and work on rebuilding it just to give more away next year.

2017 crpytocurrency bull market run

2017 Boom to 2018 Bust

Horror stories have been surfacing over the last year about traders who crushed it in the 2017 crypto bull market only to lose all their gains in the 2018 bear market. They made huge gains, six, even seven figures trading Bitcoin and other cryptocurrencies in 2017.  

Going into 2018, the thought was that this market was going to keep going straight up forever. New ICO‘s were coming out almost daily, and they all looked great. All this new wealth was being created and even though the signs were all around that a crash was coming, few wanted to acknowledge them.

It was Lambo time, baby! Until it wasn’t.

The crash came hard and fast. Top market cap cryptos saw 70-90% drops and those ICO’s, well, many died.

Yep, 100% losses. All those huge gains from 2017…gone.

And just when it couldn’t get any worse, for many it did. The worst of all government agencies, the dreaded IRS came knocking and they wanted their take on that 2017 boom year. Uncle Sam didn’t care that 2018 was a disaster and that so many people not only lost their gains from 2017, but many also lost most of the initial amount they put into crypto.

The U.S. tax system works off of each calendar year, and although you can push investment losses forward against future gains, you cannot apply losses to previous gains.

What’s worse is that because so many moves were made during the madness, BTC to various altcoins and ICOs and few positions were held for more than a year, it resulted in those gains being considered short term capital gains and taxed as ordinary income, which can be as high as 37% federal. Whereas, regular capital gains are capped at 20%. In both cases, state taxes are also due where they apply.

Short-term capital gains rates & brackets (same as income):

Tax Bracket Table

Long-term capital gains rates & brackets:

Capital Gains Tax Table

Complex tracking

Tracking trades is nothing new to traders.  Keeping track of gains and losses is standard and generally pretty easy in the traditional world of investing. It’s not quite as easy when it comes to crypto trading.

The IRS has categorized cryptocurrency as property for tax purposes. So this means gains and losses have to be reported as capital gains, no different than stocks and real estate.  

It gets a bit more complicated with crypto but these are the basics of what is and what is not a taxable event…

  • Trading cryptocurrency to US dollars is a taxable event
  • Trading cryptocurrency to cryptocurrency is a taxable event
  • Using cryptocurrency to buy goods and services is a taxable event
  • A wallet-to-wallet transfer is not a taxable event
  • USD to cryptocurrency is not a taxable event but you do need to keep good records of the original buy price.  

Even though not every move is a taxable event you still need to keep track of every move to figure out your cost basis for each investment.  In most cases, there are fees when you transfer crypto from one place to another. There are several companies that have developed software to track all of these moves for taxes which is all but necessary to accurately report gains/losses on your taxes.

What if accurate records aren’t kept

For traders that have not been keeping good records, some for years, the IRS does not show any mercy.  If audited you will have to provide evidence of your original cost basis and how you arrived at your gains and loss figures.  If evidence cannot be provided then a zero-cost basis can be applied to all of your crypto assets and taxed on the full amount of all your holdings.  If that is bad enough penalties and interest can be assessed for inaccurate filing and late payment.

What about not filing?

Many people think that because crypto is supposed to be anonymous that the government will never know who they are so they simply won’t file. This strategy may have worked for a while but with the growth of the crypto market and the number of gains being made, the IRS is increasing its efforts.

Coinbase has already been forced to surrender records of anyone who has transactions of over $20,000 on their platform. With all transactions being ledgered on public blockchains, all that needs to be done is match wallet addresses with names. In the future software will be developed, if it hasn’t already, to figure who owns what.

There has to be a better way

Is there any way to avoid the complex tracking, confusing filling and legally not even have to pay taxes on cryptocurrency trades?

Yes, there is!  

Utilizing an IRA (Individual Retirement Account) to make your trades inside of, will legally avoid having to track and pay taxes on your trades.  

A little IRA history for your reading pleasure

IRAs have existed since the mid-’70s when they were created to provide employees of companies that did not offer retirement plans a way to save with tax advantages and also to provide a vehicle for preserving the tax-deferred status of qualified plan assets at employment termination (rollovers).  

IRAs were an instant hit and garnered $1.4 billion in the first year (1975). With contribution rising quickly they hit $4.8 billion by 1981.

Many additions to IRAs have been added over the years. The 1978 Revenue Act implemented the Simplified Employee Pension IRA (SEP-IRA), which provided small business owners to contribute.  

The Economic Recovery Tax Act of 1981 allowed for IRAs to become universally available as a savings incentive to all workers. In 1992, provisions were made to allow for “special purpose” distributions without the 10% early withdrawal penalty.

My favorite addition came in 1997 when the Roth IRA was introduced which allows for non-taxable distributions.

I will discuss this is in more detail later.

Other important additions to note is the 2001 Economic Growth and Tax Relief Reconciliation Act which increased contribution limits and added a catch-up provision for taxpayers over the age of 50.  

The Consumer Protection Act of 2005 expanded protection for IRA accounts when the owners were going through bankruptcy.

In 2010 a provision, for Traditional IRA owners to convert funds to a Roth IRA, regardless of income level.

Although several other modifications to the IRA program have been made over the years these are the most significant.

What’s the difference?

There are different IRAs, each with its own set of rules and benefits.  

Traditional IRA:   The most common IRA, a Traditional Individual Retirement Account, allows an individual to get a tax deduction for money that is set aside for retirement. The money put into an IRA and the investment earnings on those contributions are not taxed until they are withdrawn.

Roth IRA:  A Roth IRA gives investors a ‘pay now, save later’ tax advantage.  Unlike most other individual retirement accounts, with a Roth, you pay no taxes on distributionsincluding your investment growth — as long as you do not remove any funds until the age of 59 ½.

SEP IRA: A type of traditional IRA for self-employed individuals or small business owners. (SEP stands for Simplified Employee Pension.) … Employees of the business cannot contribute – the employer does. Like a traditional IRA, the money in a SEP IRA is not taxable until withdrawal. The yearly maximum contribution to substantially higher than a Traditional IRA.

SIMPLE IRA:  The SIMPLE IRA allows eligible employees to contribute part of their pre-tax compensation to the plan. This means the tax on the money is deferred until it is distributed. Like other employer plans, the SIMPLE IRA allows employers a tax deduction for contributions they make to the SIMPLE IRA plan.

Rollover IRA: A Rollover IRA is an account that allows you to move funds from your old employer-sponsored retirement plan into an IRA. With an IRA rollover, you can preserve the tax-deferred status of your retirement assets, without paying current taxes or early-withdrawal penalties at the time of transfer.

The short explanation

To keep things simple the main 2 differences to consider are pre-tax funded with tax-deferred gains (Traditional, SEP, SIMPLE, Rollover) vs. post-tax funded with tax-free gains (Roth).

First Generation Crypto IRAs

Considering the complexity of tracking trades and the painful tax burden imposed by the IRS, it was only a matter of time before there was an easy way to trade cryptocurrency through IRAs.  A couple of bad options have existed for a few years.

Bad option #1

Many Gold IRA companies created crypto divisions as the market was exploding in 2017. These companies use the same model that they use to sell overpriced gold and silver coins in IRAs.  They employ commission salespeople who strong-arm customers into deals with transaction fees of up to 15%. Charging a 10-15% fee to make an investment is not only a ripoff; it also makes it impossible to actually trade.  Many of these companies have been shutting down and leaving customers scrambling to find new providers to help them. I guess this model only works when the market is going straight up, and FOMO is in control.

Bad option #2

The ‘Checkbook LLC IRA’ model requires customers to open new LLC’s, business bank accounts, filling yearly reports with the IRS and on t op of these complexities, it is also legally questionable, to say the least. Checkbook IRAs And Digital Assets: A Bet Against The House

Finally a Cryptocurrency IRA for everyone

It is said the best companies solve big problems in big markets.  There is $27 Trillion in U.S. retirement accounts. There is $9 Trillion in IRAs alone and another $8 Trillion in accounts that can be converted to IRAs like 401Ks, 403bs, TSPs, and 457s.  If that’s not a big market, then I don’t know what is.

iTrustCapital was created to give clients access to trade cryptocurrency inside of IRAs, allowing clients to benefit from the tax advantage these accounts provide.  iTrustCapital offers the easiest, most transparent, and secure platform for trading cryptocurrency in IRAs. iTrustCapital gives its clients the ability to trade 24/7 from their personal dashboard, the lowest cost with only a 1% trade fee and $29.95 per month, which cover the IRA account and unlimited storage with institutional wallet leader Curv.

Clients have the choice to roll-over or transfer funds from existing retirement accounts with no taxable event or penalties.  They can also fund a new IRA with a cash contribution. There are no limits on rollover/transfer amounts into a new IRA. For 2019 the contribution limits have been increased to $6,000 if you are under 50 years old and $7,000 if you are over 50 years old.

To learn more visit us at or call at 866-30-TRUST (866-308-7878)