Top 3 Legal Ways to Bypass Bitcoin Capital Gains Taxes in the US

Now that Bitcoin is gaining a lot of value, people are looking to convert small portions back to fiat currency. Unfortunately, there are quite a few regions where this conversion is subject to capital gains tax. There are some ways to avoid this problem, although not all of them are equally appealing. These methods are legal, though, but it is always best to do your own research first.

DISCLAIMER: We at The Merkle always encourage users to pay their taxes diligently. The methods listed above should be used to optimize your spendings. Blatantly avoiding paying capital gains taxes can be seen as a criminal offense regardless of using the methods below. 

3. Gift Bitcoin To Family and Loved Ones

Although this is a somewhat of a “dirty trick”, it is possible to gift Bitcoin to others without them paying capital gains tax. Because the bitcoins were never converted to fiat, the capital gain was never realized. This allows you to send a certain amount of Bitcoins without either person having to pay taxes on it.

This will work if everyone lives in the United States, although your mileage may vary for other countries. Bitcoin gifts in the United States are subject to 0% capital gains taxes. That is, assuming the people receiving the coins qualify as “low-income”.

Furthermore, if the person you gift the bitcoins to decides to cash them out at a later time, and also happened to make some profit off of holding them, the person is responsible for paying capital gains on those gifted Bitcoins.

This method may not necessarily be popular, since it requires a fair amount of trust and paperwork to cover all angles. It is not advised to use this method for large amounts of Bitcoin either. Although this is a legal method, it should not be abused by any means.

2. Foreign Bank Accounts

People active in the world of finance often use bank accounts in different countries. Regions such as Belgium, Belize, and even Hong Kong do not have any capital gains for Bitcoin as of right now. Opening a bank account in that country and using it for Bitcoin exchange purposes is within the confines of the law. However, this activity will still be scrutinized by the government, and may result in an investigation regarding the origins of said funds.

There are also laws regarding owning a foreign bank account which should be taken into account if you decide to go this route.

1. Hold And Wait For Legal Recognition

The best option – although also the ones that will make up most of the time – is just to hold onto Bitcoin and wait until your country officially recognizes it as a currency. Capital gains on purchases or conversion are quite annoying. However, Japan has set a legal precedent to legally remove capital gains taxes from Bitcoin purchases. It will be quite some time until the rest of the world catches up with these developments, though.

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  • jer cuarteros

    there are also other legal ways to do it :

    1.) although there are reports of people getting busted for trading bitcoins with fiat money in person, as it seems like you are still required to get a license to operate regardless if it’s one time in a year or for just 1$ , you can in theory , just trade bitcoin to cash in person by going to a state that makes it clear that is it legal to do so without needing for a license.

    2.) bitcoin to monero : buy bitcoins on your main account , wait for a small drop to record a loss, then buy moneros before it rises up again. the bitcoin wallet you have will be traceable , and they can still see how much moneros you bought or converted to,(but they can only consider the loss as no gain is yet to happen) but once you have moneros, all you have to do is to create another monero wallet, do a transfer from your initial monero wallet to the new one (their ring signature prevents anyone from tracing where and how much you sent or received on a monero-to-monero trading, it will show as multiple transactions from both the sender and receiver’s blockchain, and those people who might have been involved in the process don’t even know that their wallets were used in the automatic ring signature process, creating a plausible denial which is not illegal by law as they won’t be able to prove anything against you) . keep the moneros for now : they won’t know much you have , all they can trace is your loss. once you need to convert it to bitcoin though, don’t send it back to your main bitcoin account, create multiple bitcoin wallets, send the bitcoins there . then you can report that you have a loss with bitcoins. then do option #1 stated in the article , where you send small amounts of bitcoin to you as gifts

    • Daniel Bencomo

      But lets say you buy 100 XMR with BTC. There is a record of you buying 100 XMR and sending those 100 XMR to a wallet, then the trace is gone. Wouldn’t they probe/research where those 100 XMR are?