January 20, 2020
Last year, Bitcoin was one of the world’s best performing investments. While prices never rose to the heights of the boom from a few years ago, it still more than doubled from the beginning of the year. A $50,000 Bitcoin investment in January 2019, would have been worth nearly $100,000 at the start of 2020.
The problem with cryptocurrency trades is that every buy, sell, or swap is considered a “taxable event.” More often than not, as in the case in our hypothetical investment, any return on these investments are taxed as short-term capital gains. If you’re a middle-class earner and live in a state like California, this means you pay more than 30%, in taxes, of your profits. In this example, that’s more than $15,000!
Cryptocurrency taxes are so complicated that companies like Token Tax developed specialized software to help traders make sure they comply with tax laws. Thankfully, there’s another way to avoid the confusion and potentially avoid all taxes by wrapping your investments in an IRA. You don’t need an existing retirement account to start, but if you do, you can tap into that extra capital.
The IRS defined cryptocurrency as an asset in 2014, which made it possible to make investments with a Self-Directed IRA. The problem is that, until very recently, making these investments required customers to either process transactions with a representative by phone, or deal with the burdensome requirements of checkbook LLCs. Thankfully, two companies currently offer full-service IRA trading accounts that let you buy and sell cryptocurrencies 24 hours a day. The first, BitcoinIRA, was established in 2014 and started offering 24/7 trading in 2019. The second, iTrustCapital, is an LA-based tech startup that launched its trading service last July.
According to our (iTrustCapital) data, millions of Americans want to invest in cryptocurrencies and other alternative assets like gold and real estate, but don’t because the process is too expensive and complicated with existing services. Our mission is to create a low cost, simple, and safe way to invest in alternatives like cryptocurrency. Much of our management team comes from trading giant PIMCO which gives us a strong background to create an industry FinTech platform technology. The iTrust platform includes unlimited institutional-grade storage on Curv’s SOC-2 certified platform.
Choosing a Self-Directed IRA is the first step of this process and not all of them are the same. There are plenty of options that have hidden fees, making the process expensive and often not worth pursuing. There are also less than reputable Self-Directed IRAs that use misleading information that could jeopardize your finances.
Regardless of the platform investors use to trade cryptocurrency, all should strongly consider an IRA-based trading account in their portfolio. When considering their options investors should also consult their tax advisor. There are tax savings to be had; investors must grab them.