Crypto Currencies

How To Hide Bitcoin From IRS?

Bitcoin and cryptocurrency have been the most discussed about topics in the past few years. The excitement is directly related to the new possibilities of digital assets and blockchain technologies, which significantly expand the possibilities of international business, are actively introduced into government structures, and are widely used for online settlements. In this article, we will analyze the functions of the IRS in the field of taxation of bitcoin and the possibility of placing crypto assets in offshore jurisdictions.

The Internal Revenue Service (IRS)

The Internal Revenue Service (IRS) is part of the US Treasury Department and one of the world’s most efficient tax administration organizations. In fiscal 2019, the IRS collected over $ 3.56 trillion in revenues and processed over 253 million tax returns.

The IRS’s mission is to provide the highest quality service to US taxpayers by helping them understand and fulfill their tax obligations and apply tax laws fairly.

IRS activities in relation to BTC

How To Hide Bitcoin From IRS?

On March 25, 2014, the US IRS released guidance on taxing transactions with bitcoins and other virtual currencies. For federal tax purposes, bitcoins are treated as assets, meaning that those who purchase bitcoins as an investment vehicle will benefit from “capital gains” when selling bitcoins, rather than “exchange rate gains.”

By selling goods and providing services in exchange for bitcoins, the taxpayer makes a profit, which is calculated at the bitcoin to US dollar rate on the day of payment. By purchasing goods and services for bitcoins, the taxpayer incurs expenses, which can also be taken into account when calculating the tax base (for the calculation, the bitcoin rate to the US dollar on the day of payment is also used).

Profits from issuing bitcoins are also taxed. The high volatility of the bitcoin rate can lead to tax liabilities for those who pay with bitcoins for goods and services (in particular, the obligation to pay tax on capital gains).

If you are a US citizen or permanent resident of the country, then you automatically agree to comply with tax regulations. The fact is that US citizens remain tax residents regardless of where they live and how long they live. Only children under 18 and those who have renounced US citizenship can waive the obligation to pay taxes and report income. Bitcoin is taxed in the US. Therefore, if you make a profit in the United States, you may need to pay taxes.

As for citizens of other countries, the situation with taxation of bitcoins has not yet been regulated. The authorities of many countries say directly that they are ready to tax cryptocurrencies, but they have not yet fully decided how to perceive bitcoin and its fellows: a means of payment? Currency? Product? Exchange-traded / investment product?

Bitcoin and offshore: tax-free trading

From the point of view of protecting assets and own interests, as well as for tax-free international trade, offshore jurisdictions are very attractive for bitcoin.

Offshore corporate structuring is great for cryptocurrency trading. If a foreign businessman or investor is planning to set up a business to trade his own or borrowed digital money, using an offshore company to reduce taxes will look like this:

  1. Formation of an International Business Company (IBC) in an offshore jurisdiction.
  2. Opening an account for a company on the cryptocurrency exchange.
  3. Placing orders to buy and sell assets on behalf of the IBC (here you are an authorized trader).
  4. IBC profits are generated in a zero-tax environment (if the structure is correct).
  5. Your income – salary payments, payment of consulting services or commissions, percentage of trading profits that IBC makes

Funds deposited into an offshore bank account are subject to taxation regardless of the holder’s tax residency. In any case, such income is subject to a tax assessment, but with the correct structure, you can claim a variety of deductions and tax benefits, including to reduce tax liabilities in the country of residence.

Important! Significant profits from offshore Bitcoin transactions can be reinvested in IBC. This transaction is tax-free.

There are several ways to fund an offshore company with Bitcoin tax-free.

For example:

  • create a dual structure with an offshore company and a charitable foundation, where you can send donations in cryptocurrency;
  • to establish two international companies: one will work with long-term investments, the second will conduct trading activities and receive investments from the first entity;
  • exchange fiat money for bitcoins, and transfer assets as an offshore IBC charter capital;
  • create a personal account in an offshore bank, transfer funds in bitcoin from an onshore corporate account (if an offshore account was created in the name of an onshore company);
  • create an investment IBC, sign an investment agreement on commercial terms;
  • register as an online trader, open a personal brokerage account, and transfer assets to it, then register a brokerage account with the company and complete the transaction as an internal transfer.

Of course, each of the above methods has its own drawbacks, depending on the chosen jurisdiction. For example, bitcoin offshore can be used as an investment vehicle that you are not entitled to for a certain period (long-term investment). In this case, the regular profit will not raise questions from the tax authorities, since for a certain time you simply do not receive any income.

For the proper organization of a business in order to obtain all sorts of privileges of certain jurisdictions, you will need the help of a tax and corporate expert in creating basic protection for bitcoin and other cryptocurrencies.

Legal protection of bitcoin and data offshore

Registries, where sellers and buyers of digital currencies are recorded, always remain closed, only the identifiers of bitcoin wallets are available. Offshore Bitcoin is the strictest privacy with easy transactions. In this case, you have the right to make any transactions with intangible assets in the form of cryptocurrencies, unless otherwise stated in the legislation of a particular state.

Moreover, such activities are currently not subject to foreign exchange controls in most offshore jurisdictions. In fact, you have “all the cards in your hands” for fast and efficient development with a parallel reduction in tax payments. A large number of classic offshore companies fully support innovation, including blockchain technology. At the same time, states belonging to offshore zones do not accept court decisions made outside their jurisdiction.

Increasing anonymity when transferring bitcoin offshore

Confidentiality of transactions, protection of coins from confiscation, legal security at the international level – all these privileges are given by cryptocurrency along with a high level of anonymity. Now we are talking about keeping the secrecy of financial transactions using cryptocurrency not in terms of the ability to hide income, but as a way to protect ourselves, capital and property from aggressive raiding or relatives. It is not uncommon for wealthy people to literally hide cryptoassets and savings to protect them in the event of a divorce, from pressure from relatives of high-ranking officials, etc.

As for offshore companies, here the provisions on the confidentiality of personal data and financial transactions allow you to obtain the highest level of security. Complex business structures provide for good anonymity, which is what rich and successful people strive for.

An offshore company creates an additional level of separation between bitcoin and the owner of the cryptoassets if a digital currency-related account is created with an IBC company.

Leave a Comment