How Tax Attorneys Buy Bitcoin
The IRS on Cryptocurrency
There’s a smart way to buy Bitcoin that all tax attorneys are doing. It’s the most tax-efficient way to purchase any cryptocurrency. In this IRA Financial Group article, we’ll share the secret with you.
Cryptocurrency is a form of digital money designed to be secure and, in many cases, anonymous. The cryptocurrency, Bitcoin, has become the leader in bringing a wave of other cryptocurrencies on decentralized peer-to-peer-networks. Bitcoin is currently the standard for cryptocurrencies.
Although many investors (including retirement investors) consider Bitcoin to be “cryptocurrency”, the IRS doesn’t consider it “currency.” On March 25, 2014, the IRS (Internal Revenue Service) issued its first statement on digital currency. From the IRS notice, it became clear that the IRS considers virtual currency as a capital asset.
Bitcoin and Cryptos as a Capital Asset
In other words, cryptocurrency is “property” for tax purposes. Therefore, the same tax principles that apply to property also apply to transactions using virtual currency, according to the IRS.
What does this mean for investors? Cryptocurrency, such as Bitcoin, is subject to short-term or long-term capital gains tax rates. This is the case if the investor holds the asset for more than twelve months.
Self-Directed IRA (Individual Retirement Account)
Now here’s how tax attorneys are buying Bitcoin to avoid high taxes.
If you make retirement investments through a Self-Directed IRA, then you know the IRC doesn’t say what you can invest in. However, it clearly states what you cannot invest in. Additionally, investors are not prohibited to make transactions with Disqualified Persons directly or indirectly.
However, a Self-Directed IRA can buy, sell and hold cryptocurrencies.
The tax environment for retirement account investors pertaining to cryptocurrency is quite favorable. Typically, when an IRA generates income or gains from the purchase/sale of a capital asset (like stocks), the IRA doesn’t pay any tax on the transaction. Also, taxes are deferred until the retirement account holder makes a distribution. In the case of a Roth, gains are tax-free on a distribution.
Buy Bitcoin with a Self-Directed IRA
A Self-Directed IRA is the ideal retirement account to buy Bitcoin. It will allow the investor to defer, or eliminate, taxes from the investment. A smart tax attorney knows how to buy Bitcoin using a Self-Directed IRA and shelter all gains from tax.