You may have heard the old saying, “Nothing is certain except death and taxes”. But how does that relate to crypto?
During the 2011-2013 Bitcoin bull run, investors made massive profits as the price of bitcoin skyrocketed. With the lack of clear guidance from the IRS on the tax liabilities, people treated these profits as free money. Little did they know, the IRS was already developing tax codes for crypto gains.
In 2014, everything relating to crypto gains changed…
The IRS Notice
In 2014, the IRS put forth Notice 2014-21, 2014-16 I.R.B. 938, clarifying its position on the taxation of digital currencies like Bitcoin. With this notice, crypto is now designated as property for federal income tax purposes.
You can learn more about this from the IRS here.
The IRS's Stance on Cryptocurrency
Any gains from the sale, trade, or use of crypto are now subject to capital gains tax. This decision by the IRS was a big hint that crypto was moving out of the shadows and starting to play by the same rules as the rest of the financial world.
What does this mean for crypto investors?
Let's break it down with an example
Suppose an investor buys bitcoin worth $50,000, which later appreciates to $200,000. This increase represents a $150,000 gain. However, this gain remains untaxed until the investor sells their bitcoin for U.S. dollars or trades for a different crypto asset.
The impact of the tax rate is determined by how long bitcoin was held.
- Short-Term Capital Gain: The holding period is less than a year, which generally means a higher tax rate.
- Long-Term Capital Gain: The holding period is over a year, which generally benefits from a lower tax rate.
Taxes On Your Crypto Investments
Trying to figure out capital gains tax on your crypto can be challenging especially if you’re not a tax expert.
While some situations may require specialized crypto tax software, navigating manual data entry and deciphering complex regulations can feel like climbing Mount Everest in flip-flops.
The good news? There are easier paths to the summit.
At this point, you might wonder: Is it possible to sidestep taxes on my cryptocurrency gains each year?
One innovation that has recently captured the attention of many is the Crypto IRA.
What is a Crypto IRA?
A Crypto IRA is an investment vehicle where an investor can buy and sell crypto assets, like bitcoin, in a tax-advantaged way.
A Crypto IRA can be structured in two common forms, the tax-deferred avenue of a Traditional IRA or the tax-free path of a Roth IRA.
The Benefits of Crypto IRAs
Here are a few reasons why investors choose Crypto IRAs.
Tax Benefits
The primary benefit of a Crypto IRA is the taxes! Let's break down an example, from a Crypto Roth IRA:
Let's take the same situation from above where you buy $50,000 worth of bitcoin in a Roth IRA and its value increases to $200,000 over the next few years. That’s a $150,000 gain and if the investor were to sell the bitcoin within the Roth IRA, the $150,000 gain is not subject to capital gains tax if you're at least 59.5 years old and your account has been active for over five years.
24/7 Accessibility
You have 24/7 accessibility to the markets. Unlike the stock market which has specific trading hours and days, the crypto market never sleeps. With 24/7 availability, you can instantly respond to market fluctuations, buying or selling Bitcoin at optimal times throughout the year with the tax benefits of an IRA.
Custody
Assets in a Crypto IRA are stored in custodial accounts held by a regulated, third-party chartered trust entity. This reduces the risks and complexities associated with managing your digital assets, providing peace of mind alongside the potential for financial growth.
Your Future With Crypto
Now that you’re familiar with crypto taxes and crypto IRAs, you’re ready to take advantage of all the benefits they have to offer.
iTrustCapital is a leading Crypto IRA software platform that allows investors to buy and sell crypto inside of a tax-advantaged retirement account.
Why iTrustCapital?
Tax Benefits
iTrustCapital allows you to choose between a Traditional or a Roth IRA, both offering tax benefits.
24/7 Accessibility
With a Crypto IRA at iTrustCapital, you have round-the-clock access to the markets, a feature not available in traditional stock markets.
Low Fees
At iTrustCapital, you pay less in fees than most other self-directed IRA technology platforms. By saving on fees, you can maximize your overall return.
Custody
Security at iTrustCapital is a top priority. Client assets are securely stored in custodial accounts managed by a regulated, third-party chartered trust entity, and importantly, all assets are kept off balance sheet. This arrangement allows iTrustCapital to offer compliant retirement accounts while guaranteeing that client funds are kept separate from operational finances.
Client Support
Forget chatbots and AI! At iTrustCapital, we believe in real people and real connections. That's why our award-winning client support, praised by thousands on Google and Trustpilot, goes above and beyond.
To learn why investors opt for iTrustCapital, click below.
Top 5 reasons to open a Crypto IRA at iTrustCapital
Now you know why people choose iTrustCapital, you're all set to embark on your journey with a tax-advantaged crypto IRA.
Open an account today!
DISCLAIMER
This article is for information purposes only. It does not constitute investment advice in any way. It does not constitute an offer to sell or a solicitation of an offer to buy or sell any cryptocurrency or security or to participate in any investment strategy.
iTrustCapital is a cryptocurrency IRA software platform. It is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular cryptocurrency, precious metal, or investment strategy.
Cryptocurrencies are a speculative investment with risk of loss. Precious metals are a speculative investment with risk of loss. Cryptocurrency is not legal tender backed by the United States government, nor is it subject to Federal Deposit Insurance Corporation (“FDIC”) insurance or protections. Clients do not receive a choice of custody partner. The self-directed purchase and sale of cryptocurrency through a cryptocurrency IRA have not been endorsed by the IRS or any regulatory agency. Historical performance is no guarantee of future results.
Some taxes and conditions may apply depending on the type of IRA account. Investors assume the risk of all purchase and sale decisions. iTrustCapital makes no guarantee or representation regarding investors’ ability to profit from any transaction or the tax implications of any transaction. iTrustCapital does not provide legal, investment or tax advice. Consult a qualified legal, investment, or tax professional.
iTrustCapital makes no representation or warranty as to the accuracy or completeness of this information and shall not have any liability for any representations (expressed or implied) or omissions from the information contained herein. iTrustCapital disclaims any and all liability to any party for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising directly or indirectly from any use of this information, which is provided as is, without warranties.
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