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27 July 2021

Get a passport, pay crypto, live tax-free?

Get a passport, pay crypto, live tax-free?

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Yes, buying something using crypto — a house, a car, a new suit — can trigger taxes.

However, if you pay with $5,000 worth of Bitcoin (BTC), as long as the crypto is worth $5,000 when you pay, you’re home free, right?

The transfer of the crypto to the tax man is a sale, and that could mean more taxes for the year of the payment.

If you bought the crypto for $5,000 the day you pay your taxes, there’s no gain.

If you are paying with crypto, remember that most transfers of crypto are taxable, unless the transfer qualifies as a gift or a charitable contribution.

You can give crypto as a gift, and it doesn’t trigger income taxes.

However, keep in mind that to avoid income taxes, a gift has to actually be a gift.

The tax law is littered with cases of people who claimed something was a gift, but who got stuck with income taxes.

True gifts may not trigger any income taxes, but there could be gift taxes involved.

If you give crypto to a friend or family member — to anyone really — ask how much it is worth.

If you give to charity, that can be very tax-smart from an income tax viewpoint.

If you give crypto to a qualified charity, you should normally get an income tax deduction for the full fair market value of the crypto.

Remember, if you use crypto to buy something, the IRS considers that a sale of your crypto.

You might have bought something with your crypto, but you made a sale in the process.

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