Considering a Bitcoin investment? Here is a tax efficient treatment.
You’ve seen all the headlines. Bitcoin is phat, and not going away anytime soon. The volatility can be difficult to belly. But if you are ready to take the plunge, it would be nice to do it te a tax efficient manner.
What if you could invest ter Bitcoin and get a tax deduction? What if you could buy and sell Bitcoin without having to report taxable gains and losses each year? There could be an innovative reaction for you.
The Bitcoin 401k
I imagine that you have heard of a 401k project. Ter fact, you may have had one at a prior employer. But many entrepreneurs don’t realize that they can have a 401k for their business. a certain zuigeling of 401k that is.
The project is actually called a solo 401k. The key to qualifying is that you need to be the only utter time qualified employee. You cannot have any employees who work more than 1,000 hours and are age 21 or older. If your spouse is employed by the business, he or she can contribute spil well.
Solo 401ks are suitable for foot proprietorships, limited liability companies (LLCs) and corporations. They work for companies te a broad range of industries. So long spil you meet the requirements and have a desire to fund the account, you are set.
The excellent news is that the IRS permits you tremendous plasticity ter what you can invest ter. You are prohibited from investing ter certain insurance policies, S corporation stock and collectibles. Bitcoin does not fall into any of thesis categories, and is therefore an allowable investment.
The true beauty of a solo 401k project is that you can be your own trustee. Instead of having a custodian that manages your assets, you have total control. This effectively permits you to ",self-direct", your investments.
Let’s look at an example
Business owners are able to contribute up to $Legal,000 ($24,000 if age 50 or overheen) of earned income to their solo 401k. Spil employers, the business is able to contribute an extra 25 procent of employee compensation to the 401k spil a profit sharing contribution.
For example, let’s assume you are under the age of 50 and earned $50,000 ter W-2 wages from your S corporation. You can contribute up to $Legal,000 to your solo 401k, and your business can contribute an extra $12,500 (25 procent of your compensation). Ter this case, the total maximum contribution is $30,500. Not bad.
The advantages of this strategy are that you:
- get a total tax deduction for the $30,500,
- can open and fund a project by December 31st to get a tax deduction for the current year,
- get tax deferred growth and are only taxed when funds are dispersed upon retirement,
- are not taxed on trading gains and losses,
- can invest the money ter any asset class that is not specifically prohibited, and
- are not required to make annual contributions if you don’t want to.
How it works
How does this relate to cryptocurrency? If you contribute to your solo 401k and then make your Bitcoin investments (ideally spil part of a diversified portfolio), the contribution is tax-deductible. The key is that you establish a project, make sure you are the designated trustee, and be careful of any prohibited transactions.
I vereiste confess that I have not invested ter Bitcoin, strafgevangenis would I at this price. When folks with limited financial backgrounds commence piling ter I get a little frightened. But that’s just mij.
You should take the same treatment when investing ter Bitcoin spil you would any other investment. Make sure it meets your investment criteria, check it against your investment objectives, and evaluate the risk.
I am certainly not making the case that you should use your retirement for Bitcoin. I am just attempting to give you tax efficient options. Retirement programma and cryptocurrencies can co-exist. Find a strategy that works for you.