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Want to Know How to Avoid Paying Crypto-Taxes?
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Want to Know How to Avoid Paying Crypto-Taxes?

Cryptocurrency investors will normally have to pay taxes on every single cryptocurrency transaction they processed throughout the past twelve months. However, there is a loophole available to cryptocurrency investors, but it involves giving the funds to another person or charity as a gift.

Gifting Bitcoin Avoid Paying Crypto-Taxes

In 2017, the IRS started to probe businesses that deal with digital assets like the exchange Coinbase. For the moment the IRS is looking for individuals and groups who have spent over $20,000 using Coinbase. Following this initial probe, the San Francisco exchange has started to send customers the IRS tax form 1099-K. Additionally, investors have realized that 1031 tax-free exchanges won’t apply to digital currencies, and every transaction is also considered a taxable event.

Giving bitcoin as a gift is one way investors can avoid paying taxes on their cryptocurrency gains. However, it should be noted that gifting money has to be more aligned with donating the funds as opposed to an employee bonus, and there is a fine line between the two financial events. Robert Wood, a tax lawyer based in San Francisco, has stated that an individual can gift up to $15,000 without documenting the transaction.

Wood explains:

“If you give crypto to a friend or family member, to anyone really, ask how much it is worth. If the gift is worth more than $15,000, it requires you to file a gift tax return,”

For 2018, $15,000 is the amount of so-called “annual exclusion.” You can give gifts up to this amount each year to any number of people with no reporting required.

Wood explains:

“For 2018, $15,000 is the amount of so-called ‘annual exclusion,’”

Wood details that the gift doesn’t trigger income tax requirements for both the giver and the recipient. If the recipient calculates gains or losses (cashes out) from the gift in the future, then the funds will be taxable based on the value the day the gifting happened. Wood details that documenting the gift is helpful because donating money is often written off improperly. If the donation exceeds $15K, then U.S. residents are required by law to file a ‘gift tax return.’


Wood goes on to explain that in 2018 the amount a person or married couple can give per lifetime has increased quite a bit. According to the tax attorney, a person can gift up to $11.2 million tax-free during their lifetime, and married couples can gift up to $22.4Mn. If the individual gives the money to a recognised 501(c)(3) charity, they can get an income tax deduction for the spot value of the digital asset at the time of filing.

Last year Andreas M. Antonopolous rightly received thousands of dollars worth of bitcoin after he was ‘poor shamed’ on twitter by Roger Ver. If Andreas kept track of the cost bases across all the bitcoin donations, he received he may have been able to claim the contributions as tax-free gifts. However, if he treated the gifted funds as ordinary income, his gifts would face significantly higher tax rates for his gains.

UK Tax Loophole

In the UK there is another loophole that can be exploited. This exemption lets taxpayers class their investment in cryptocurrency as “gambling”, winnings from which are tax-free. This tax loophole which reduces Bitcoin investors’ gains to zero will be exploited by people filling in their returns for this tax year, potentially creating millions in lost revenue for the UK Government, experts have said.

Winnings from gambling are generally not considered investment returns and so avoid taxation, leaving HMRC with the potential of a huge blackhole in its returns following a year of cryptocurrency boom.

An HMRC spokesman said:

“We don’t normally tax betting and gambling because it is usually not classed as trading income. But there may be circumstances where factors such as the degree of skill and organisation would make the activity more likely to be taxable as trading income. Each case will depend on its own facts.”

The rules are expected to confuse amateur investors as they leave it unclear who should be characterised as a gambler and who should fall into the taxable bracket of investor, barrister Etienne Wong claimed.

The current guidelines have not been updated since 2014 when bitcoin was worth less than £500, today a single coin will cost a trader £9,125. According to the three year old guidelines cryptocurrencies users who buy and sell coins in a similar way to an investment are required to pay capital gains tax.

If someone is deemed to fit this description they will be forced to pay 18 per cent tax on any money over £11,300 if they pay basic-rate tax and 28 per cent if they are a high rate taxpayer.

Robert Langston of Saffery Champness has told cryptocurrency users to declare themselves as investors leaving them more likely to pay tax.

He said:

“It is difficult to see how the profits on mainstream cryptocurrencies such as Bitcoin could be seen as gambling profits. There may conceivably be some cryptocurrencies in which the markets are random, and therefore the profits could be treated as gambling.”

Mr Langston has claimed that even if use is deemed gambling because investors are gaining an asset and not cash it remains taxable.

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