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Beating Uncle Sam: Learn How To Invest in Bitcoin Tax-Free

One of the most popular quotes attributed to Benjamin Franklin is that “in this world nothing can be said to be quite certain, except death and taxes”. Taxes are one of the unavoidable facts of modern living and you’ll most likely run into serious troubles if you don’t pay your taxes in full and on time. However, taxes are mostly unfair and it hurts many people to give a significant part of their income to Uncle Sam just so they could be law-abiding citizens.

The worst part is that the rich folks, politicians, and people in the corridors of power pay relatively lesser taxes than the average Joe. In fact, folks close to the corridors of power have built in loopholes into the taxation laws in order for them to avoid paying taxes legally. Some folks also embrace offshore bank accounts as a means to store their wealth while reducing their tax liabilities.

However, you don’t need to be in the corridors of power to beat Uncle Sam in the tax game. More so, you don’t need to go through the stress of opening an offshore account. This article provides information on how you can invest in Bitcoin tax-free and legally without incurring the wrath of Uncle Sam using a Bitcoin IRA Account.

What you need to know about Bitcoin and taxes

To start with, Bitcoin is likely to enjoy a more favorable tax environment in Europe. In 2015, The European Court of Justice Ruled that Bitcoin and other cryptocurrencies are exempt from value added tax (VAT). In essence, you’ll be more able to exchange Bitcoin tax-free in Europe than in any other part of the world. Many EU member nations such as Belgium, Spain, and Switzerland have adopted the rule to provide Bitcoin VAT exemptions.

The U.S. tax authority, Internal Revenue Service (IRS) doesn’t seem to be particularly endeared to Bitcoin and it has ruled that Bitcoin is taxable. Based on IRS guidance notice 14-21, the law regards Bitcoin and other cryptocurrencies as capital assets. In essence, the IRS says your Bitcoin is similar to stocks and bonds; hence, you must disclose and account for your Bitcoin losses and gains in the same way that you’ll account for stocks losses and gains.

Nonetheless, you should note that it is not easy to report and tax Bitcoin holdings because it is very hard to determine the fair value of Bitcoin. Hence, many people tend to avoid Bitcoin altogether in order to avoid making mistakes that could put them on the hook for misfiling or tax evasion. However, a Bitcoin IRA Investment can help up invest in Bitcoin tax-free without running the risk of flouting the law.

Here’s out to beat Uncle Sam to for tax-free Bitcoin investments

The first thing you need to understand about investing in Bitcoin tax-free is that you’ll need a Self-Directed IRA. You can Rollover your 401k into Bitcoin using a self-directed IRA and the Bitcoin in your self-directed IRA account will be tax-free. However, any other Bitcoin that you hold outside the Bitcoin self-directed IRA account will be subject to taxes because the U.S. government treats Bitcoin as an asset.

To start with, you’ll need to contact a company that helps people to setup a self-directed IRA and inform them of your intention to open a self-directed IRA. You can only invest Bitcoin in a self-directed IRA – your 401K or ROTH IRA might not be suitable for tax-free Bitcoin investments.

The company setting up your self-directed IRA will send you some forms that will be used for the incorporation of an “investment” LLC. You’ll be designated as the manager of the LLC – and a new company that we will call XYZ IRA Services (for example) will be the sole member.

You’ll also be asked to fund the XYZ IRA Services and forms to initiate the funding will be provided to you. You can fund XYZ IRA Services by moving money from your 401K, your ROTH IRA, or by setting up a new IRA contribution strategy by wire transfer or check.

After you have funded XYZ IRA Services, you can send an Investment Authorization form to XYZ IRA Services with directions to invest in the LLC. You’ll also need to open a business checking bank account in the name of the LLC.

Once the business bank account is up and running, you can simply buy Bitcoin for your IRA from a Bitcoin exchange. Once the Bitcoin is deposited in your wallet, you’ll only need to sit back and watch your investment grow without having to worry about paying the prevailing capital gain tax. Rinse and Repeat!

Big Four enter the Bitcoin game: Deloitte Sets up Bitcoin ATM

Bitcoin’s price has seen a surprise boost during the second week of September. Not only did it’s price hold above $600, but has now managed to jump above the $620 levels overnight. Let’s take a closer look into some of the fundamentals that could have been the cause for prices to go up.

Deloitte Launches a Bitcoin ATM

Deloitte Bitcoin ATM
Michael Perkin tests the new BTM at the Deloitte Toronto office

On Wednesday ‘Big Four’ accounting firm Deloitte has opened and is now operating its first bitcoin ATM. The opening was quiet and took place in the downtown Toronto offices of Deloitte’s Rubix blockchain division. The bitcoin transaction machine, or BTM, is now all set to exchange digital currency for Canadian dollars.

The move by Deloitte to house a bitcoin ATM is primarily their to let its employees interact with the blockchain. The head of  Strategy and Execution at Rubix by Deloitte, Iliana Oris Valiente, said, “We see this as being an important milestone for us as an organization. It’s a move to improve accessibility and hands-on learning as first step toward greater blockchain adoption.” Bitaccess, an Ottawa-based company, manufactured the BTM and it can accept up to 1,000 bills in multiple currencies.

Italy to tax Bitcoin as currency

Italy’s top tax office is treating bitcoin as a form of currency. Agenzia della Entrate, Italy’s top tax authority, released new information this month about its treatment of digital currencies. Recently EU court ruled that value-added tax (VAT) would apply to transactions executed using the technology. The development is in line with the same ruling and would give Bitcoin the status of a currency. Italian tax officials are applying income tax to speculative uses of bitcoin, or events in which money is made during a sale or purchase. While this indicates a mainstream adoption, there are other looming factors which are flagging concerns. Analysts believe that the ruling creates a new layer of uncertainty for businesses working with the digital currency.

Accenture and EY’s Blockchain competitions

In a bid to brainstorm and fabricate implementation of Blockchain Technology, companies are hosting challenging exercises for longer durations. These exercises aim at creating blockchain solutions to real time problems confronted by Financial Institutions. Accenture is hosting its 5th annual 12- week FinTech Innovation in London. The lab intends to help startups with product and business development. Startups attending the lab will focus on fintech applications such as blockchain technology, Internet of Thingsdevices, security and risk management, and digital media. In regards to distributed ledgers, the multinational firm predicted the technology would have a significant impact on business.

EY is also throwing a six-week challenge, except this event is on distributed ledger technology. The EY Blockchain Challenge will have startups focus primarily on two distinct industry services: digital management for the entertainment sector, and energy solutions. Entrants will have access to EY’s client mentors, educational workshops, press exposure, and networking with institutional executives.

Microsoft Launches Smart Contracts

The First week of September was positive for Bitcoin enthusiasts as the currency is healthily trading over $600 levels. With steady volumes being traded, analysts are expecting a big swing that might take the price upwards of $720. While Microsoft launching Smart Contracts might be one factor, let’s look into other positive highlights of the week:

Microsoft and Smart Contracts

Microsoft has announced that it is forming a dedicated group for improving smart contracts security. The group named as ‘Kinakuta’, aims to make it easier to share information and tips about smart contracts. Smart Contracts refer to self-executing blockchain-based code that could automate complex transactions. Concerns about the contracts have grown after vulnerability led to the collapse of the technology’s first large-scale implementation. There has been a growing realization that smart contracts are new and can sometimes be dangerous if used improperly.

However, Microsoft’s director of business development and strategy Marley Gray believes new tools might help developers avoid future mistakes.

Gray told:

“We feel there’s a huge opportunity here to involve the community. Kinakuta is the community building around Microsoft best practices and elsewhere, to collect best practices and tools and involve developers in creating these best practices.”

Australia to end Bitcoin Double Tax

The Australian Treasurer and the FinTech Advisory Group met on Friday to further discuss the development of innovation. Among topics focused on were blockchain technology and ending the double tax for digital currencies, including bitcoin. The meeting discussed various FinTech topics, including a review of opportunities for blockchain technology. Also, the government reiterated that its intention is to stop the ‘double taxation’ of digital currencies under the GST regime. Currently, consumers in the land down under are ‘double taxed’ when using digital currency to buy anything already subject to Goods and Services Tax (GST). The Australian Tax Office (ATO) does not consider bitcoin and other cryptocurrencies money or foreign currency.

On the same lines popular peer to peer bitcoin exchange LocalBitcons has announced reduction of trading fee for bitcoin trades in UK. After Brexit, there was a fall in Sterling Pound Valuation. This move is aimed at increasing bitcoin trades among UK customers. Starting from September 5th, the transaction fee has been halved for all the customers in UK.

Japanese organizations launch Blockchain Collaborative

The University of Tokyo, The University of Aizu, Center for Global Communications (GLOCOM), and Soramitsu Co.  have partnered to study “smart currency” effects on regional development. The working groups will experiment with distributed ledger technology. The Universities and Global communications have taken up theoretical research on the applications in most of local regions. Fintech startup Soramitsu, a company using blockchain technology to create a digital identity platform, is handling the industry application part. Soramitsu is a member of the Linux Foundation’s Hyperledger Project, which aims to create international industry-wide distributed ledger standards.

 How ripples of these events would further effect the price, has to be seen in the coming week.