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The topic of cryptocurrencies and taxes has been kicked around a fair few times. It seems cryptocurrency trusts offer a legal method of avoiding taxes. They are not necessarily for everyone, yet they do raise some interesting issues.
The Future of Cryptocurrency Trusts
It has become apparent that not everyone wants to pay taxes on their Bitcoin holdings, either due to personal reasons or some nefarious intent. Either way, the IRS is unlikely to change its stance on treating cryptocurrency as property. It is a topic which has sparked many debates in the past and will probably continue to do so for some time to come.
As such, all individuals in the United States will need to pay taxes on their cryptocurrency holdings and investments. However, there is a growing search for solutions which are legal, yet allow users to avoid (most of) the taxes they would face otherwise. As is always the case in the financial system, legal loopholes can be found by conducting proper research, at least until the IRS decides to address them.
An interesting discussion which arose recently revolved around cryptocurrency trusts. A cryptocurrency trust is a trust like any other in the financial sector, except it’s one that solely holds cryptocurrency assets. Although these vehicles are still subject to taxation, there are a few methods out there to reduce or negate one’s taxes. This is not something that should be abused by any means, as the IRS will uncover fraudulent behavior sooner or later.
Separate types of trusts can be identified. There is the living trust, which is not taxed separately. The transfer of Bitcoin or another cryptocurrency to such a trust isn’t taxable, as the living trust isn’t a separate taxpayer. Another solution is the non-grantor trust, where the transferor is not taxed. However, the trust itself does pay taxes and the distribution can be taxed separately.
One benefit shared by virtually all cryptocurrency trusts is that they impact state taxes. Forbes recently outlined a few interesting models in this regard, as some states are better places than others to set up such trusts. New York is clearly less appealing in this regard, as its lawmakers are all too aware of this “legal trickery” and how it can be beneficial to cryptocurrency users. The state of New York hasn’t been pro-cryptocurrency for quite some time now.
Although cryptocurrency trusts can pose a few interesting options, it is also apparent there are plenty of risks involved. Avoiding taxes of any kind, even by legal means, is always risky for cryptocurrency users, and it may not necessarily be worth the effort. Whether or not there will be growing interest in cryptocurrency trusts moving forward remains to be seen.
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.