Bitcoin Tax Strategies Locally and Overseas – Stephan Livera Podcast: Part Three

Learn about Bitcoin tax strategies locally and overseas with tax experts Clinton Donnelly and Dennis Wohlfarth on Stephan Livera’s podcast, episode 183.

Bitcoin tax strategies

Dennis Wohlfarth of Accointing and Clinton Donnelly of Donnelly Tax Law join Stephan Livera to talk about Bitcoin tax recordkeeping, and strategies to minimize tax. In the full podcast, we chat about:

  • Current Bitcoin tax treatment
  • Capital gains Bitcoin tax treatment
  • Bitcoin tax recordkeeping
  • Bitcoin tax strategies locally
  • Bitcoin tax strategies for those willing to go overseas
  • International crypto competition

In part one, we talked about Bitcoin tax treatment and Austrian economics on Stephan Livera Podcast, episode 183, and our guests were from the company Accointing and Donnelly Tax Law

In part two, we talked about Bitcoin tax recordkeeping.

Today, our podcast show notes are about how those various crypto tax situations from part two are treated from a crypto tax law perspective locally and internationally.

Bitcoin Tax Strategies Locally

Bitcoin tax strategies

What are some different ways various Bitcoin Tax Recordkeeping situations are treated from a crypto tax law perspective?

Clinton Donnelly:
If I sell Bitcoin and buy a car, I have capital gains when I dispose of that Bitcoin. 

I bought it at a lower price, and I’m selling it at a higher price. That’s equivalent to what I’m paying for the car, that’s the capital gains. 

And we see countries like Portugal are saying, if you pay for Bitcoin, we’re not going to have a VAT tax involved, which is kind of a duplicate tax: a VAT on top of capital gains. 

In the US, it’s just the sales tax, which is the taxes on what is sold, not how you paid for it. So it’s a bit of a different structure.

Cryptocurrencies are turning the tax regimes upside down with blockchain technology, DeFi, and smart contracts.

These exciting innovations are transforming the financial industry and turning our whole notion of currency and property upside down, especially from a tax and accounting perspective.

How do we do accounting when we are no longer trading in Fiat currency, and we’re trading in a Bitcoin? 

It’s an asset that’s continually changing value relative to the Fiat’s in which we have to report our business results to the tax authority. So, everything’s getting very complicated. 

The tax authorities find that defining cryptocurrencies merely as assets or merely as a property is not adequate, because it’s changing so fast. It’s becoming far more than mere property. 

Nor is it adequate to call it currency because it’s not only embraced by one government and everything that is involved with that.

We're seeing that tax authorities are holding back in moving forward with new taxation regimes targeted at cryptocurrencies because they don't know where it's going. They don't want to hamper progress by having tax rules making no sense as technology progresses.

I think we’re going to see taxation rules that are much like property continue, at least for the next five years until there’s a real settling down of this massive finance evolution. That’s frustrating to some people, but I think there will be something newer and better coming out of it.

Stephan Livera:
So for most people who are just holding it’s going to be treated as property, and it’ll just be the capital gains tax (CGT)

I suppose most people are looking for ways to minimize taxes on that legally. I guess one of them is tax-loss harvesting, and another might be moving to a better jurisdiction or things like that might be typical strategies that people are employing. Or the collateralized loan idea is putting out some Bitcoin and getting USD so that you’re not incurring a capital gains event. 

Are these the typical strategies that you see in your experience? Are there any other ones that people are employing?

Clinton Donnelly:
Yes. Lots of those people are putting in trust and then getting payments from the trust. These are all variations. 

There’s a bit of a shell game here. You’re moving the tax to the different places the tax eventually gets paid.  

The thing you mentioned with the collateralized loans: that’s a great strategy. Suppose you want to use a short-term asset’s value until it’s been collateralized long enough to characterize it as a long-term asset and then sell it at the long term capital gains rates. That makes sense. But these are just small micro strategies.

Bitcoin Tax Strategies For Those Willing To Go Overseas

Bitcoin tax strategies

Let’s say you’re a Bitcoin whale, and you have massive positions in Bitcoin. If you see yourself liquidating a lot of this, then the one strategy would be to relocate if you want to improve on the long-term capital gains rate.

Let’s put a framework in place to how you can make that decision.

So you want to ask yourself some questions if you were to relocate. 

But first off, you would be selling where you currently live and moving somewhere else, so you would be incurring new expenses. 

What’s the cost of living there? 

What’s the quality of living? 

Will you find yourself so bored living on an island in the South Pacific that you fly back to Sydney every month to go to an opera show? 

There are some quality of life things. 

You also have issues relative to banking access. 

When liquidating some Bitcoin, you want to put that into a bank and get access to it. 

Ask yourself if you can open up a bank in that foreign jurisdiction?

People may ask why you are coming to Bali to open up a bank account, for example.

They may wonder why you are coming to the British Virgin Islands to open up a bank account if you live in Europe or live in Australia.

These are valid, “know your client” type of due diligence questions that may be difficult for you to open up a bank. If you don’t have a bank, will moving elsewhere be a foolish thing to do? 

Let’s think about the cost of that. 

If your upside is that you have a $100,000 worth of Bitcoin, long-term capital gains rates, let’s use the US rate at 15%. That means your tax is $15,000. 

What can you do? 

That’s going to reduce $15,000 if you move somewhere that you might end up spending. It might be zero tax right there, but you might be spending more than the $15,000 to have moved there.

If you had $100,000 Bitcoin, then we’re talking about a lot of money. 

You might be slowly liquidating your positions over multiple years in this scenario and might be thinking about how much you will liquidate yearly? 

Will it be $100,000? Well, you’d typically be generating a $15,000 tax. Will you do better living somewhere else? 

It’s possible on an ongoing basis if you’re doing that. 

Portugal has an attractive tax regime with zero tax, and it’s also a beautiful cultural area in Europe. That’s an excellent thing.   

The British Virgin Islands, any of the Caribbean countries, and Seychelles, all have an interesting tax regime. The problem with these banks is that if you’re doing something with a Seychelles bank, BVI (British Virgin Islands) bank, or any other bank in the world, it will raise a red flag.

It isn't easy to work with any country in the gray area when it comes to anti-money laundering laws. An option in the US would be in Puerto Rico. It’s an exciting option for Europeans and non-Europeans (Americans).

I’d be happy to dig into those some more if you’d like.

Stephan Livera:
Sure. Let’s talk a little about some good places around the world, as you mentioned. 

I know Portugal, Singapore, and Switzerland all have no capital gains tax and Germany, as Dennis mentioned. 

I think if you hold for more than one year, there’s no capital gains tax. Depending on where you look around the world, some places might be a little better and others, not so much. 

You can find out more about International crypto competition and the ways people should explore options to determine if it were worthwhile for them to consider moving in part four of the Bitcoin Tax Strategies Podcast notes.

READ MORE: Puerto Rico For Crypto Traders

Final Part Of The Bitcoin Tax Strategies Podcast

Stay tuned for the final part of the Bitcoin Tax Strategies Podcast with our host Stephan Livera. 

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