Giving up US citizenship for Bitcoin: Is it worth it?
16 Jan, 2020 · 5 min read
Thinking about renouncing your US citizenship for Bitcoin? Today, we explore all the implications about that decision.
As part of my job here at CoinTracking, I answer cryptocurrency tax related questions on Reddit and other social platforms. Opinions about taxes vary wildly. Many US-based cryptocurrency traders simply just want to find out what they need to do to comply with tax laws, but some are strongly against the very idea of cryptocurrency taxation.
Some US-based crypto traders see paying taxes as a responsibility, but others don’t want to pay because they disagree with the way that Bitcoin is taxed, or believe that cryptocurrency should be not be regulated or taxed at all.
For those that are truly disgruntled, there’s the Roger Ver approach: US citizenship renunciation for Bitcoin. The controversial cryptocurrency entrepreneur bought tens of thousands of Bitcoins in 2011 when prices were hovering around the $1 mark, then famously renounced his citizenship in 2014 to avoid paying taxes.
Is it worth it to make such a drastic move today? CoinTracking reached out to cryptocurrency-proficient tax professionals to gather their opinions on the topic.
Moving abroad doesn’t make you tax exempt.
Shann M. Chaudhry, Esq. of smcesq.com pointed out that simply moving to another country and establishing residency there won’t reduce your tax liability.
“This [moving to avoid taxes] is typically not a viable situation for tax planning for US Citizens of substantial assets. Most other first world countries have an exit tax. However, the USA has taxation based on worldwide assets and income, which is different from most other countries, which are residency based.”
That worldwide tax policy is why it’s necessary to take the drastic step of renouncing your US citizenship for Bitcoin if you want to avoid paying taxes when you cash in your crypto investments.
US citizenship for Bitcoin? You may have to pay an exit tax.
Even renouncing your US citizenship for Bitcoin won’t automatically disqualify you from US tax obligations. If your net worth exceeds $2 million, you’ll still have to pay an exit tax when you make your transition.
According to Chaudhry, the exit tax is computed as if you sold all your assets on the day before you expatriated and had to report the gain. The exit tax rate might be as high as 23.8%, depending on a variety of factors.
On the other hand, there are some money saving tax strategies that Bitcoin investors can use if they are willing to make the leap.
Cross-border tax planning specialist Patrick J. McCormick, a partner at the Philadelphia offices of Culhane Meadows, mentioned a few potential workarounds:
“You can have more than $2 million in net worth – you’d just need to gift it away in the year prior to the expatriating event. You’re basically looking to make transfers in the year prior to expatriation of assets out of the expatriating individual’s “exit tax base” – which isn’t necessarily the same as relinquishing all future benefits from the asset. You can have things like intrafamily transfers, etc. which are beneficial here – where there’s still benefit retained, but you’re lowering your net worth (and, for those who can’t realistically gift to the point where their net worth is below $2 million, you’re at least lowering the actual exit tax hit). Transferring assets – particularly, highly appreciated ones – in the year prior to expatriation can be a huge benefit.”
You may be denied entry to the United States (and other countries, too) if you renounce US citizenship for Bitcoin.
Roger Ver famously gave up his US citizenship in 2014. Image source: Wikimedia Commons
As Roger Ver discovered, those that renounce their US citizenship for Bitcoin may have difficulty obtaining a visa to travel there.
According to The Telegraph, a letter from the government stated that Ver was denied entry because he lacked “the ties that will compel [him] to return to [his] home country.”
Ver ran into a travel trouble again last year, when he tried to attend a cryptocurrency conference in Australia. The Australian government was apparently not convinced that Ver wouldn’t overstay his visa and become an illegal immigrant.
Forget renouncing US citizenship for Bitcoin. Where could a crypto millionaire go to avoid taxes?
Roger Ver expatriated to Saint Kitts and Nevis, which doesn’t tax individual citizens at all.
Several other countries don’t tax some types of cryptocurrency gains. Germany doesn’t tax long-term cryptocurrency capital gains, for example. Singapore and Malta have similar tax rules– they don’t tax long-term cryptocurrency capital gains, either. Portugal, Belarus and Malaysia don’t even tax short-term capital gains.
The residency requirements for many of these countries are surprisingly flexible. In most cases, all you would have to do is purchase property wherever you want to live and reside there for about six months to establish a tax residency.
For those who are interested in further details, Forbes has provided a detailed overview of several of the countries mentioned above.
How many Bitcoin millionaires are there?
Many who purchased or mined Bitcoin in the early years are now extremely wealthy. However, determining the exact number of Bitcoin millionaires there are in the world today is a difficult task for researchers.
In an interview with Penta, a spokesperson from research firm BitInfoCharts estimated that “between 20,000 and 200,000” Bitcoin investors may have become millionaires over recent years.
That figure doesn’t include all the people that have invested in Ether and other altcoins. Ether was only worth $10 at the start of 2017. Today it’s worth about $140.
To the moon and beyond: a short history of Bitcoin price spikes
Crypto industry investor Anthony Pompliano describes Bitcoin as “the best performing asset class over the past ten years.” During the last decade, it outperformed the S&P, DOW, NASDAQ and other stocks and indexes.
People who invested in Bitcoin back in 2011 could purchase an entire Bitcoin for a dollar or less. By March of 2015, the price of Bitcoin was hovering between $200 and $300. As the weeks and months rolled on, Bitcoin kept rising. By May of 2016, its price had more than doubled. Around the same time the following year, BTC shot past the $2,000 mark. A few months later in December, it had reached an all-time high of $19,783.06.
Prices have settled down a bit since 2017, but Bitcoin still sells for more than $7,000 today.
The best way to figure out your crypto tax situation is with CoinTracking.info– the most trusted brand in the space. We’ve been supporting the cryptocurrency community since 2013. Since that time, we’ve accumulated over 400,000 users.
All you need to know about crypto taxes:
Crypto Tax Guide for the United Kingdom
Crypto Tax Guide for the United States
- How to report crypto in your taxes?
- What tax forms do I need for crypto?
- NFT Taxes: The Complete Guide for the US
Crypto Tax Guide for Australia
Crypto Tax Guide for Canada
Your tax journey with CoinTracking:
- Importing your trades from 110+ exchanges/wallets.
- Import your DEX, Binance Smart Chain, and Binance Chain trades.
- 25+ advanced reports.
- Automatic Capital Gains calculations
- 12 accounting methods supported across countries (e.g., FIFO, LIFO, HMRC, ACB).
- Tax Reports ready to deliver in your country.
Sign-up to CoinTracking today!
If you need personalized help reviewing your transactions or preparing your US tax returns, check out our CoinTracking Full Service. CT Full Service is provided by a team of crypto tax professionals led by Sharon Yip, an expert CPA. Follow our weekly AMAs on Twitter where Sharon Yip answers your crypto tax questions.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.
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