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How to reduce tax burden on a large bitcoin windfall

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bitcoinadopter:
I'm a bitcoin early adopter and recently I received an alt-coin(bitcoin cash) at no cost to myself. Everything I've read says that receiving this altcoin is a taxable event. Once received I converted it into bitcoins. The total value is about $200k which will all be taxed as regular income and put me in a rather high tax bracket as I already have other income for this year as well. I also have a substantial sum of bitcoins that I have not sold but will be taxed as long term capital gains when I do, and while this rate is low I'd still be paying 35% tax with state tax if I were to sell a significant quantity in order to diversify.

I am looking for ideas on how to reduce my tax burden. Currently I am thinking the simplest option would be to start a business and buy assets for said business. These assets would either yield passive income such as a house so I'd have a steady flow of income over the course of multiple years in a much lower tax bracket or assets I could buy now and sell for a similar price or profit in the future. I would also like to move to a state with either low or no income tax as currently I will owe 10% to the state which is a huge chunk for capital gains.

I do plan to speak to a professional but would love to get some feedback before I do and also would appreciate any advice on how to seek out an accountant or financial advisor who would be competent in guiding me on reducing this tax burden.

seattlecyclone:
Based on your mention of having $200k worth of Bitcoin Cash, I infer that you own somewhere in the ballpark of 500-1000 BTC. At current prices this puts your total crypto holdings at USD$2 million or possibly much more. You have won the game. Stop playing. Even if you owe 35% of the proceeds to various governments upon selling your coins, you'll still have well over a million bucks. Don't let the tax tail wag the dog. Bitcoins are quite volatile and speculative. You could easily be FI right now if you diversify your holdings. But having so much in BTC or any cryptocurrency, there's way too much uncertainty to credibly claim you're FI based on those holdings alone. Even if you're a true believer in the potential of blockchain technology in general, whether the BTC implementation of that technology will hold its value over time is something that nobody can really predict.

I don't know of any magic bullet to avoid the taxes, sorry. I suppose you could move to Washington or Texas or another state without income tax, and sell to save 10%. But the federal tax man will get his share, and I really believe that you're playing with fire letting that much of your net worth ride in one cryptocurrency just because you're afraid of the tax bill. Get at least USD$1 million out. Today. Or if you plan to move first, go get a U-Haul today and sell next week.

GuitarStv:
Use the bitcoin as it was intended - to buy drugs.  Cut the drugs with household cleaning supplies, resell for cash.  :P

bitcoinadopter:

--- Quote from: seattlecyclone on August 14, 2017, 03:07:54 PM ---Based on your mention of having $200k worth of Bitcoin Cash, I infer that you own somewhere in the ballpark of 500-1000 BTC. At current prices this puts your total crypto holdings at USD$2 million or possibly much more. You have won the game. Stop playing. Even if you owe 35% of the proceeds to various governments upon selling your coins, you'll still have well over a million bucks. Don't let the tax tail wag the dog. Bitcoins are quite volatile and speculative. You could easily be FI right now if you diversify your holdings. But having so much in BTC or any cryptocurrency, there's way too much uncertainty to credibly claim you're FI based on those holdings alone. Even if you're a true believer in the potential of blockchain technology in general, whether the BTC implementation of that technology will hold its value over time is something that nobody can really predict.

I don't know of any magic bullet to avoid the taxes, sorry. I suppose you could move to Washington or Texas or another state without income tax, and sell to save 10%. But the federal tax man will get his share, and I really believe that you're playing with fire letting that much of your net worth ride in one cryptocurrency just because you're afraid of the tax bill. Get at least USD$1 million out. Today. Or if you plan to move first, go get a U-Haul today and sell next week.

--- End quote ---

I do intend to sell a large portion but even if the value of btc went to zero I would still be doing well. I had a job as a web developer and quit to travel and get into freelancing and could always easily get another well paying job I enjoy. I live a frugal life and am single and under 30. I would like to hold onto about half of them and see where it goes. Pretty much spot on I want to get out about a million.

effigy98:
With the tax numbers you are talking about, I would hire a tax lawyer to help me protect as much as I can. Paying 35% on the gains would stress me out. I agree with seattlecyclone, you have won the game. You should be cashing out a large chunk and retiring soon and at the very least, cash out all your bitcoin cash that is probably going to zero. Also, I agree with the moving part if you are cashing everything out. A temporary situation to save 100k seems worth it.

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