Made a Lot of Money on Bitcoin…. Now What?
You Are One Of The Lucky Few Who Got Into Bitcoin Early! Whether It Was Through Good Luck, Good Intuition, Or Having An Annoying Friend Who Wouldn’t Leave You Alone Until You Bought It… You Are Glad You Made The Initial Investment When You Did.
The relatively little amount you invested into Bitcoin, now represents an opportunity that has life changing implications.
Long gone are the days where your biggest concern was not having enough money. Now you are wondering how you can take your wealth from the virtual world to the real world without getting killed by taxes.
Let’s face it. I highly doubt anyone who got into Bitcoin early did so with the goal of helping to feed the beast or the tax man. Your investment was in a philosophy where one could change the paradigm by ignoring the FED as opposed to fighting the FED. As an early adopter, your long-term capital gains tax rate could be as high as 23.8% (cite this). For those who acquired their Bitcoin via mining, your tax situation is more than likely even worse. Bitcoin miners are taxed using less preferential income tax rates as opposed to capital gains tax rates.
Another issue you now realize is that it may no longer be prudent to have 99.99% of your net-worth tied up in one of the most volatile asset classes that has ever existed. You want to keep some chips on the table in the event we see $1,000,000 USD per Bitcoin, but at this stage of the game you also think it’s wise to play with the house's money.
Now the biggest issue you face when you diversify is being hit by capital gains taxes. As an early adopter, your capital gains taxes are going to be huge. If you were to hypothetically cash in a million dollars of near zero cost basis Bitcoin, you're going to owe nearly $238,000 in taxes!
What if I told you there were some potential strategies that could legally cut of the IRS?
What if I told you there are some strategies, where depending on your: age, risk tolerance and lifestyle could be used to minimize or potentially avoid taxes altogether greatly?
Ultra-wealthy families have been using various trust strategies for ages to preserve their family’s legacies. Some of these strategies involve: charitable remainder trusts, charitable lead trusts, foundation strategies and other advanced tax-advantaged investments such as economic opportunity zones that can help the well to do to pay as little taxes as legally possible. High net-worth families also have well-crafted exit plans anytime they sell a business or transfer a business to an heir.
Early on I realized that crypto early adopters had a huge potential tax problem on their hands. This initial premonition came around the time of the Bitcoin and Bitcoin cash fork and little would I know that Bitcoin would rise from approximately $3,000 to $20,000 within a span of only a few months. If the awareness of tax issues was a concern at $3000 per Bitcoin, then it was an over 600% bigger concern when Bitcoin ultimately peaked around $20,000 per USD Bitcoin.
The entire story of how I came about focusing on this niche can be summed up in 30 seconds by Ernest Hancock of Freedoms Phoenix in the video below. For those that don’t know, Ernest’s radio show was one of the first radio shows in America to start regularly talking about Bitcoin. He is also the creator of the Ron Paul R3volution logo and hosted the first Ron Paul meetup group in America.
It’s common knowledge that nearly all ultra-wealthy households have one type trust or another. What a lot of people don’t realize is that there are numerous types of trusts out there and that the word trust is often used interchangeably to mean many different things. Trust is often used as catch all word in a similar sense to when people refer to all cryptocurrencies as Bitcoin.
In the case of the Charitable remainder trust, the average person doesn’t realize that the donor can be the income recipient of their Charitable Remainder Trust for as long as they're alive.
Lets say you transfer $1,000,000 USD to a charitable remainder trust.
The benefits are you get to avoid capital gains tax!
The income from the trust is paid to YOU and if applicable your spouse while you are alive!
Now depending on the donor’s: age, spouse's age, withdrawal percentage, they will also receive a lucrative tax benefit. The avoidance of capital gains tax and tax deduction is on top of being able to withdrawal income from the trust for as long as you and your spouse are alive. Many donors withdraw between 5%-10% of their trusts annually*
* The annual withdrawal percentage must remain consistent, and there are many disclosures and considerations one must evaluate before deciding if one of these strategies is right for you. We would highly advise you talk with a financial advisor, lawyer, and CPA before engaging in one of these strategies. Lastly, the older you are and the more gains one has, the better this strategy will work. These strategies are not ideal for those under 30, except in rare circumstances.
This planning is not a one size fits all strategy. No two people will have the same strategy, and for most individuals, this strategy will not work. Most of these strategies are only attractive to older individuals with substantial low-cost basis assets such as Bitcoin, Stocks, and Property.
Not only do you get to diversify out of your highly concentrated position(s) without triggering capital gains, not only do you get to get a potentially huge tax break up front to then offset your future income, but you're also allowed to sell assets inside the trust without triggering further capital gains!
With this particular strategy, one could conceivably diversify away from Bitcoin within their trust assets and hypothetically invest into traditional stocks and or other cryptocurrencies or alternative assets. In most cases, our clients will have plenty of Bitcoin and other cryptocurrencies outside their trust, and the trust assets will be a means to diversify out of their crypto in a tax advantaged fashion. As Voluntarists we believe its important donors have the option of keeping their charitable assets in crypto, as long as they are properly educated on the implications and risks of doing so.
The high-level and general example we’ve discussed here is only one of the many different trust strategies that's out there. There are also charitable lead trusts which work in the opposite fashion. In the lead trust, the grantor has a trust that gifts money to a charity every year, and after a set number of years, the principal returns to the grantor at a stepped-up cost basis.
Advanced estate planning involves concepts and strategies where one can get into the weeds rather quickly. These concepts and their executions are complex and confusing, even to most seasoned financial planners. That's why I'd recommend that if you are an early adopter, you first check out a couple of videos I did on this subject as well as reading my estate planning investors guide that can be accessed below.
Then I'd recommend we have a 15-30 minute discovery call to see if you'd be a good candidate for this kind of strategy or not. If it does make sense for us to work together, odds are it will cost you far more in taxes to not work with us, than you’ll wisely invest working with us.
In that case, what do you have to lose? Most of our clients work with us remotely and have never met in person. With today's technology, you don’t need an expert down the street. You need one in your living room or on the phone that can save you the trip across town to the local crypto financial planning expert that doesn’t exist.
Most people have no idea there are so many escape hatches built into the system and they don't know who could help them navigate those escape hatches. I'll be upfront, most of these strategies aren’t ideal for the majority of investors. This is only for select individuals. You can rest assured we will be upfront with you if I don’t think you can benefit from our planning services.
However, as someone who specializes in crypto wealth strategies, I know there's always more than one way to tackle an issue. What I mean by that is if the charitable Remainder strategy doesn't work for you, maybe a charitable lead trust strategy will work for you, or a donor-advised fund strategy or maybe a combination of everything previously mentioned. Maybe selling assets into an economic opportunity zone makes more financial sense for you? It might be a better fit to consider having a self-directed IRA or a Roth IRA where you can invest in crypto using your retirement accounts, while retaining your private keys. (have link to ira copy here)
As someone who invested into crypto early, odds are you're either planning to:
Live a work optional lifestyle
Become a perpetual traveler
Maybe you want to retire. In which case I’d highly recommend you watch my presentation on the 7 biggest risks retirees face you’ll receive when you sign up for our discovery call.
Maybe sitting on the beach or off grid in the middle of the woods?
Or maybe you truly want to make a difference in the world and maybe add to the good you’ve already been doing. For prospective clients who have charitable intent and for whom are already engaged in charitable activities… odds are this is something you wish you knew a couple years ago.
In all the scenarios we just mentioned, you’ll need an advisor that understands where you're coming from, and more importantly can help you make the best financial decision as possible so we can create a real legacy from your virtual wealth.
Let me demonstrate how I’m that advisor and lets see how we can improve your life today.
Accessing this Information Can Likely Lead To the highest ROI Decision you’ve ever made outside of investing into Bitcoin early on.
BEFORE you sell your Crypto…
you need our Crypto Early Adopter Financial Domination Kit:
- Top 10 Things You Need To Know When Sitting On Massive Crypto Capital Gains.
- Detailed presentation on how Charitable Trusts can help make everyone except the IRS better off.
- Access to a 15 min complimentary conversation with Tim Picciott CFP CRPC
There are two systems of Taxation in this country, one for the informed and one for the uninformed.
Judge Leonard Hand.
Financial Services and Investment Advice Provided through Innovative Advisory Group, LLC.
Before Investing in Crypto Currencies, one should know the numerous risks involved in Cryptocurrencies, not the least of which is a potential complete loss of principal. For a list of risks and disclosures please click here.
Disclosure: Both The Liberty Advisor and Innovative Advisory Group, LLC does not render financial advice via this website. All information is for informational purposes only. Any mention of 3rd party sources is believed to be accurate but cannot be made certain that is the case. One should consult with a financial professional before acting on any information.
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