It’s an investors dream to not have to worry about taxes…
Cryptocurrencies are gaining popularity around the world as parts of everyday life continue to move online. While online-based infrastructures already exists for things like payments and banking, many of these legacy systems have reached their technological limits and pale in comparison to new capabilities enabled by cryptocurrencies and digital assets. In addition to the underlying next-generation technology, crypto as an asset class is becoming a tremendously popular investment due to a borderless online-based network, decentralized governance, and limited monetary supply. Here are three ways you can invest in crypto tax-free as a US citizen.
1) Expatriate to a Country without Capital Gains.
What reward comes without a little sacrifice? In the never-ending quest to minimize paying taxes on investments, the ultimate commitment is relocating to another country with no capital gains requirements. There are several tax-friendly countries such as Switzerland, New Zealand, and Hong Kong that are renowned tax-havens for bearing no capital gains taxes on legal citizens. This allows you to keep all of your capital gains without forfeiting a sizable percentage to taxes, keeping earned money in your pocket, and allowing investments to grow tax-free. Of course, the price for shunning capital gains tax is the ability to call the US your home. The IRS has strong clutches on its citizens and anyone who operates within its jurisdictions, so legally avoiding tax on your investment gains is only achievable by renouncing your US citizenship. That’s not to say you can’t visit for extended periods of time, but rather that you can’t permanently reside, work, or other privileges exclusively reserved for citizens. This can be a difficult dilemma for some, but for geography agnostics looking to improve their quality of life by dramatically reducing their tax liability, this move may be a no-brainer.
2) Invest in Opportunity Zones.
For those wishing to retain their US citizenship, there are local opportunities to defer paying taxes on capital gains. One such strategy is investing in opportunity zones; towns and counties designated by each state that provide investors with tax deferrals by spurring economic growth in the targeted area. This means you may defer paying taxes on capital gains gotten through crypto by reinvesting gains in qualified opportunity zone real estate within 180 days of selling your crypto. This can be done for extended periods of time and the longer you hold your opportunity zone investment, the more deferred taxes owed is forgiven, up to 15% of the total capital gains. This strategy can be lucrative as a savvy investor can defer paying taxes for years and eliminate up to 15% of taxes owed while profiting on a real estate investment. The caveat? Opportunity Zones are designated by individual states with the federal government and IRS approval due to persistent poverty levels over decades and neighborhoods in need of vast improvement. One person’s trash may be another person’s treasure but caution and expertise may be required when investing in opportunity zones.
3) Invest with a Roth IRA.
Faced with rising taxes, utilizing tax-advantaged investment accounts is more lucrative than ever. As opposed to investing in a traditional IRA and paying taxes later upon withdrawals when taxes may be higher, investing with a Roth IRA can pay off now and later. With a Roth IRA, not only can you invest directly in crypto now while actively trading tax-free, but all price appreciation and profits upon withdrawal will be tax-free as well. There are limits such as a maximum annual contribution amount (unless you rollover funds from another retirement account), but even if you wanted to withdraw your gains early, you can do so after paying an early withdrawal penalty that’s still less than the capital gains you’d pay otherwise. Luckily, iTrustCapital has built the worlds first easy to use, low cost and 24/7 Crypto IRA platform. It has never been easier to invest in tax-free crypto through a Roth IRA.
Investing in crypto can be a lucrative venture with many investors seeing outsized gains in accelerated time horizons. Unfortunately, the US is not tax-friendly and investors are faced with surrendering a significant portion of their gains due to taxes. With a little research and flexibility, a wise investor can invest in crypto tax-free by reducing or even eliminating any taxes owed on capital gains.