How to Cash Out Bitcoins Without Paying Taxes

If looking for how to cash out bitcoins without paying taxes, there are some considerations to be made that have to do more with money management than avoiding the taxes. If you sell bitcoin for fiat (cash) on an exchange and then withdraw the money to a bank, credit card, or PayPal – there is a visible transaction on which taxes may be due.  Here are some tips on the most legitimate ways to avoid paying taxes on bitcoins, short of giving up your citizenship or moving to another country:

  • Selling OTC (over-the-counter) is how to cash out bitcoins without paying taxes
  • Taking out a bitcoin-secured loan for which you receive a non-taxable amount of cash
  • Purchasing a ROTH IRA with crypto is also how to cash out bitcoins without paying taxes
  • Buying tax-free gold is how to cash out bitcoins without paying taxes
  • Receiving as a gift to instantly cash out bitcoins without paying taxes

While each individual should consult their tax professional, the basics of tax on bitcoins are:

  • If bitcoins are received as payment of services, ordinary income tax is paid on the value received. The value of recognized income equals the basis in the coins for any future sale to determine capital gains.
  • Bitcoins sold for fiat currency create a capital gain/loss based on the value sold for – less the basis (amount paid for the coin or income recognized as explained in #1). How to cash out bitcoins without paying taxes becomes very difficult as a result.
  • Bitcoins exchanged for another cryptocurrency create capital gain/loss, again based on the value sold for – less the basis.  
  • Bitcoins are not taxed in every country, so do your own research or consult a tax specialist.
  • Bitcoin taxes owed are subject to your gross income, basically anything from 0%, or 20% to 50%.

Bitcoin Cost Basis for paying taxes:

The cost basis of a coin is vital when it comes to calculating capital gains and losses and refers to its original value. For example: You buy 1 BTC for $9,500. The cost basis for that 1 BTC would then be what you paid, $9,500. Fees are also factored into the cost basis, so if you were charged a $100 fee, this would be added for a cost basis of $9,600. If you convert it to fiat when the price is higher than $9,500 you could owe capital gains on the difference. If the price is lower, you could incur a tax-deductible loss. It is very important to keep accurate records to determine your cost basis for coins received, acquired, or purchased.

Bitcoin OTC Trades is how to cash out bitcoins without paying taxes.

One issue with using a centralized exchange is the large chunk of fees taken when you trade bitcoin (or altcoins) for fiat currency. Another issue is the wait time between selling and receiving funds. And lastly, using a third party means you must trust the exchange’s software won’t be hacked resulting in loss of your funds stored there. Bitcoin is decentralized, so you can send or receive bitcoin with only the involvement of yourself and another person – just as you can exchange something you own for fiat cash with another person. The fees are much more reasonable and the security is much better, as the P2P platforms act as an escrow to lock digital assets so funds are inaccessible to either party until both parties agree the terms have been met satisfactorily. If you sell bitcoin to another person for cash, there is no record of the transaction, but this is generally only possible with relatively small sums and is, in most countries, a form of tax evasion.

Purchasing IRA with Bitcoin can be done without paying taxes.

The IRS treats cryptocurrencies like Bitcoins as a capital asset, and capital assets can be managed by retirement accounts. If you do not receive a 401(k) matching contribution from your employer, a ROTH IRA is a good solution. A Bitcoin-IRA refers to an IRA that includes bitcoin or other digital currencies in its portfolio, and they require a custodian that accepts bitcoin in an IRA. The difference between traditional IRAs and ROTH IRAs is that with the latter, you pay taxes upfront every time you contribute so that any gains made over the years will not be taxed. Purchasing cryptocurrency with a Self-Directed IRA or Solo 401(k) can be advantageous because all income and gains flow back into the retirement account without triggering a taxable event. If you believe BTC will increase in value in the coming years, putting Bitcoin in your ROTH IRA means that all your gains will grow 100% tax-free for qualified distributions. There are advantages and disadvantages which should be researched, but those wondering how to cash out bitcoins without paying taxes may avoid hefty capital gains taxes by including bitcoin in certain types of retirement accounts.

Is buying Gold a way to cash out bitcoins without paying taxes?

IRS Form 8300 is used to report cash transactions over $10,000 USD on a single transaction or from a series of related transactions. the IRS defines “cash” as a cashier’s check, money order, bank draft, or traveler’s check, and any U.S. or foreign coin and currency. “Cash” does not include personal checks, bank wires, credit/debit cards, PayPal, ACH transfers, bitcoin (or altcoins). If a customer places online orders to buy gold with bitcoin, it is not reported by the precious metal dealer. For tax purposes, physical gold investments are classified as collectibles. Gains on collectibles held for one year or less are taxed as ordinary income—the same tax treatment as short-term capital gains (STCGs). Capital gains tax is not paid until you sell. Consult your tax professional to determine if buying gold with bitcoins results in creating a taxable event for you.

Bitcoin-Secured Loans can be an option to cash out bitcoins without paying taxes.

Taking out a loan with a financial service provider for which you deposit Bitcoin as collateral is one solution. You receive a certain amount of money against bitcoin, which is not taxable because it is a loan – making this how to cash out bitcoins without paying taxes legally. Your actual BTC only moves temporarily from your custody to the custody of the loan provider, and once the loan is paid back, it is returned to your custody. This can be particularly advantageous if the BTC price at the end of the loan term is significantly higher than when the loan was opened. It might even open the possibility of refinancing the original loan using a smaller amount of BTC. Bitcoin loans can serve as how to cash out bitcoins without paying taxes for hodlers, as it keeps them from having to actually sell their coins. Unlocking some of the value of the bitcoin without disposing of the asset may be a good solution. Of course, the cash money received will have to be paid back – but that is the case with all loans.

There is usually no credit check since the loan is secured by bitcoin and repayment is not an issue. Another advantage is that a bitcoin loan will not affect your credit score, and can even be used to repay other debts that will improve your credit score. One drawback is the common loan-to-value ration is 1:2, meaning you deposit twice the value of BTC to what you receive in cash. This is due to the volatility of BTC and serves to protect the lenders. There are other considerations for bitcoin-secured loans and all should be carefully examined, as this information is only intended to briefly introduce this as an option how to cash out bitcoins without paying taxes.

Is buying Gold a way to cash out bitcoins without paying taxes


Is Gifting someone how to cash out bitcoins without paying taxes?

Absolutely! If you are gifted by a friend, family member, or complete stranger, how to cash out bitcoins without paying taxes is to immediately convert them to fiat. If you incur no capital gains, there are no taxes to be paid.  Someone can “gift” (give away) bitcoin to a friend or family member without generating a taxable event every year for a lifetime. Neither the giver or the recipient is taxed. You can, of course, also donate bitcoin to charity tax-free.

This seems to be the only tax-free exemption permitted by the IRS pertaining to digital investments. In 2020, individuals can gift any one person (other than a spouse) up to $15,000 for the year. Gifts are defined as anything you do not expect to receive fair payment for, which includes giving money, investments, property, or any other tangible or intangible assets. By the same token, if you sell someone an asset for less than it is actually worth, the difference also qualifies as a gift. Should you gift more than $15,000 in a given year, you need to file a gift tax return – but you do not pay taxes unless you have exceeded the lifetime exclusion amount of $11.58 million, which is not likely for most people.

What is considered a gift by the IRS?
Any transfer of property by one individual to another while receiving nothing, or less than full value, in return, is considered a GIFT.

Gifts do not affect your federal income tax return, and they are not deductible unless the gift is a donation to a charity with an IRS tax-exempt status. Each person can give gifts to as many people desired throughout their lifetime without having to pay tax. If you gift amounts over the annual $15,000, you file Form 709 to record the gifts toward your lifetime exclusion. The lifetime exclusion only applies when for gifts that exceed the annual exclusion (i.e. $20,000 gift in 2020, lifetime exclusion is lowered by $5,000 because that amount exceeds the annual exclusion).

Gift recipients do not have to pay taxes or claim the gift value amount on their income taxes. The ability to trade bitcoin for fiat upon receiving the gift makes this the best option for how to cash out bitcoins without paying taxes. That is, if you are lucky enough to get such a gift! Recipients need to record the value of BTC on the date of receipt for use as a tax basis in the event they cash out the bitcoin in the future. Capital gain/loss tax would be incurred as per normal if/when the bitcoin is cashed out by the recipient.

Is Gifting someone how to cash out bitcoins without paying taxesThere are only a few exemptions:

  • Gifts to your spouse, no matter the value
  • Gifts that are less than or equal to the annual exclusion
  • Educational exclusion: tuition payments you make for someone, if you pay the institution directly
  • Medical exclusion: medical expenses you pay for someone if you pay the medical facility directly
  • Gifts to a political organization for its use
  • Gifts to these tax-exempt organizations: 501(c)(4), 501(c)(5), or 501(c)(6)

The Best Advice on how to cash out bitcoins
without paying taxes?

Think of taxes as an expense, not a cost, and never make an investment based solely on tax considerations and avoid being so worried about how to cash out bitcoins without paying taxes. When you make money with bitcoin, pay your taxes. Do your own research and consult with a knowledgeable investment professional or a tax advisor to explore the tax options specific to your individual portfolio. This article is neither, and shouldn’t be construed as advice in any manner. While it is not tax evasion to research ways to hang on to more of your hard-earned bitcoin, it is to knowingly avoid paying your taxes.