How to pay zero taxes on your crypto gains with a CRT?

Cryptocurrencies have pervaded public imagination in more ways than ever before. While initially, it started with Bitcoins, there are over a thousand cryptocurrencies as of date with varying degrees of popularity. Cryptocurrencies or virtual currencies are digital modes of exchange created and used by private individuals or groups. Since most cryptocurrencies are not regulated by national governments, they are considered alternative currencies — media of financial exchange that exist outside the borders of the state monetary policy.

How is Cryptocurrency Taxed?

Cryptocurrencies are taxed in the same way as any other assets you own, like stocks or gold. If you are buying virtual currency with US dollars and keeping it inside the exchange office where you made the purchase or transfer it to your personal wallet does not mean that you will owe taxes at the end of the year. In 2019, the IRS began including a question on its Form 1040 to determine whether the taxpayer had any cryptocurrency transactions during the given tax year.

But if you are selling your crypto for U.S. dollars, exchanging one cryptocurrency for another, or paying for goods and services with crypto — a taxable transaction happens. Because the IRS considers virtual currencies property, their taxable value is based on capital gains or losses — basically, how much value your holdings gained or lost in a given period.

When you buy and sell cryptocurrency, comparing your net proceeds to your cost basis isn’t the only step in figuring how much you owe in crypto taxes. You also need to consider the length of time you held the asset, as this determines the type of capital gain or loss you recognize. Depending on how long you hold your cryptocurrency, your gains or losses will be considered short-term or long-term. That distinction will play a big role in how much you have to pay in crypto taxes.

If a taxpayer receives virtual currency in exchange for services, the income is the fair market value of the virtual currency on the date acquired and is possibly subject to self-employment tax. The basis of virtual currency is its fair market value. The individual can either immediately sell the virtual currency for short-term gain or loss or choose to pay the tax from other income sources and, thus, hold the virtual currency for longer than one year.

According to the IRS website, “a taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.”

If you acquire or dispose of cryptocurrency, you have to keep records of your cryptocurrency transactions. This also applies to businesses that accept cryptocurrency as payment for goods and services. There are different types of software are available to track cryptocurrency trades and maintain records. If you don’t pay your crypto taxes, you could get audited and may have to pay an understatement penalty of 20%.

How to get a 0% tax rate for crypto?

Now that you know a bit more about crypto taxes, let’s talk about how to minimize your taxes with a good strategy. Smart tax planning can save you some money. For the savvy taxpayer, there is a legal way to reduce taxes to zero on thousands of crypto profits. The eligibility for this 0% tax rate depends on your filing status, the annual income you make, and how long you kept the cryptocurrency before selling it.

If you’ve donated your crypto coins, like Bitcoin or Ethereum, to eligible charities, then you may qualify for the reduced tax liability. Also, crypto gifts below $15,000 are not subject to gift taxes. When you donate an asset, you can claim the appreciated fair market value at the time of donation as a deduction against your taxable income. For example, if you own $50,000 worth of Bitcoin and choose to donate it to a charity you regularly support, you may be able to write this off as a charitable deduction on your return.

The CRT (Charitable Remainder Trust) is a specialized trust recognized by the IRS. When you create a CRT, you will designate two recipients: a charity and a lifetime beneficiary. The lifetime beneficiary is you while the charity can be a church, your own foundation, or any organization that must be recognized by the IRS as a 501(c)(3) organization.

After you create a CRT, your next step is to create a cryptocurrency wallet that is tied to your CRT. You can donate any amount of crypto which you don’t want to be taxed on within this CRT Wallet. This deduction will typically be 30–35% of the amount you donated. This is because the charity doesn’t get the money until the CRT pays out. Since this can take 20 years or until your death the IRS sees no reason to give a 100% tax deduction immediately.

The next step is to sell your crypto. When you sell the crypto from your CRT Wallet, you will receive fiat currency (USD) in return. This money will transfer into your CRT. Charities are exempt from taxes, so when they sell the low-cost basis investment, in this case, bitcoin, they don’t have to pay capital gains taxes.

But this is not the end of the strategy. You need to set up your annuity as well. An annuity is a contract that provides a fixed income stream for a person’s lifetime or a specified period. That money is entitled to a single person, who is called the annuitant. You will be entitled to an 8% payout every single year, for the rest of your life.

This strategy is allowed by the IRS and has been for many years. There are so many reasons why the parties involved benefit, and why the IRS effectively loses. The reason the government allows it is because of its beneficial impact on charities and thus society as a whole.

If you need help with taxes on your crypto gains get in touch with the Empire Global team. An individual approach is important for us, and we take care of the needs of your business.




Global Professional Consultancy Services Firm providing an array of specialized services to clients from all around the world.

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Empire Global

Empire Global

Global Professional Consultancy Services Firm providing an array of specialized services to clients from all around the world.

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