Topic: Planning your Bitcoin Withdrawals - page 2. (Read 8323 times)

Isn't capital gain a form of income, though?

All capital gains are capital gains.   The only difference beween long term capital gain and short term capital gain is the tax rate but they are both capital gains.  The fact that short term capital gains are taxed at the same rate as regular income doesn't mean they aren't capital gains.

So it really comes down to does the exclusion cover capital gains or just earned income.  From the name I would assume the latter but this is why tax attorneys make good money.

Couldn't the earned part be problematic if you're just collecting capital gains? So if you're trading the coins at least once every 364 days then gains are just simple income right? Warning, I am not a tax pro or a CPA. However Canada just issued some common sense guidance for their bitcoiners.

http://news.gc.ca/web/article-eng.do?nid=787789

Foreign Earned Income Exclusion - Physical Presence Test
http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Physical-Presence-Test

It is 330 days, for 2013 the exclusion is $97,600 plus you can include your housing expenses up to 16% of the exclusion/$15,616 (for a full year).

Best advice so far.

I thought it was living outside of the USA for 51% of the time?

One thing some people may want to consider that I am currently taking advantage of is the fact that you do not have to pay US taxes up to the highest income bracket (around $100k) if you live outside of the US for 330 days out of the year. The income break covers the time away, not tax year.

I am currently out of the country making money tax free (up to the high bracket) and will likely continue to do so.

You have to keep your US residence so you should try to find a state with no income tax (I use Florida for my residence). Otherwise you will have to claim residency of the country you are in and have to pay taxes there.

So if you wanted to you could cash out up to $100k of your BTC while staying in another country...get a nice place in Costa Rica while working on a Bitcoin project from your computer...all tax free.

But being the good citizen I always report everything I do to the government because they know best and IRS agents are my heros.

I have been told by others on this board that if you buy something with Bitcoin you don't have to pay capital gains. That seems sensible.

I have been told by others on this board that if you buy something with Bitcoin you don't have to pay capital gains. That seems sensible.

Now say I buy gold, silver, or some other asset and then cash that out. How does that end up working? How can I pay capital gains on something where I buy and sell it in the same day for no (or very little) gain (when priced in USD)?

i feel bad for the people who get their coins stolen and noone believes them and they are forced to pay taxes on stolen coins. that would really suck

While most of us around here tend to be long-term bullish on Bitcoin’s future, nobody knows for certain what its value will be in one year, five years, or ten years.  With an investment where the upside potential easily hundred-fold, and the downside risk is one-fold (100% of your original investment),deciding how much to withdraw on the way up can be a torturous problem.

The ultimate goal is to find your personal balance between these two questions:

-If Bitcoin goes to $0 tomorrow, will I be able to live with the gains I locked in up to this point?
-If Bitcoin firmly establishes itself, reaching global equilibrium with other currencies, will I be able to live with the number of Bitcoins I sold along the way?

I use a spreadsheet to help play around with different withdrawal amounts. Its general approach is this: For every X% Bitcoin appreciates in value, sell Y% of my remaining Bitcoins.  Adjusting X% controls the granularity – how often and sizable each transaction is.  Adjusting Y% controls how much profit is realized on the way up, rather than left for future gains.

Feel free to adjust the numbers in the green boxes, and play around for yourself.  You're also welcome to copy and use the sheet personally.

https://docs.google.com/spreadsheet/ccc?key=0AqpoRK3q-_aKdHdwd0VubzdJbkQ5OF9GRlplVXRVY2c&usp=sharing

I don't think of this spreadsheet or plan as a trading strategy, such as entering and exiting the market based on movements above and below weighted averages. You could consider it a very long-term trading strategy whose aim is buy-and-hold, with the only trading done being to incrementally lock in gains at predefined gains.

Just know that this plan can exist for your long term planning, and you can still trade funds on a shorter time-frame, realizing BTC-based gains and losses along the way.

If you are able to discipline yourself to follow this sheet rigidly, long-term you put yourself in a win-win situation.  If the price continues rising from its relative point, you will still hold the number of Bitcoins you are comfortable with, while holding profits.  If the price downturns after you have sold some long-term funds, you have a choice.  You can do nothing, and continue to keep your long-term profits locked in.  But you'll also have the choice of reinvesting at a lower price, gaining Bitcoins, while setting up to resell them once again at a predefined future sell price.

I hope some of you find it valuable.

...
I agree with you that Bitcoin is either going big (but honestly $1M doesn't make sense even under a single world currency scenario) or nothing.  Now lets consider a 20% sell, or $250K liquidated (possibly over weeks or months) as a hedge.  The investor now has the same $1.35M net worth today but it is more balanced with $1M in BTC and $350K in non-Bitcoin wealth.  Under a Bitcoins go to zero scenario he is much better off ($350K vs $100K). Under a Bitcoin goes to the moon scenario he isn't "as rich" but say $10K per BTC he "only" has $40M in wealth not $50M.  Oh noes the humanity.  If only he had more wealth then he could have bought the extra large yatch.

Most people could probably accept that compromise (and all hedges are a compromise).  Worst case scenario I end up with $250K, best case scenario I am super wealthy vs worst case scenario I end up with nothing and best case scenario I am even MORE super wealthy.

Nice thread op!

Ive been trying to find a strategy...  


When you come to a point where your investment has been made back 3,4,5 fold.. You find yourself in a predicament where you find yourself considering if you should get your initial investment out and play with the free money or let it all ride!

A good strategy and discipline as well as a tax plan for good measure is important. Ive been trying to up my financial literacy in general but I seriously need to up my game on taxes and capital gains.

Anyway .. just wanted to say i appreciate the dialog regardless of your stance or position.

Bitcoin is either going to $100k-$1m , or ~$0.  Are you trying to take down a monster pot or make a few bucks?  What is your risk tolerance?  I guess these are the only real questions.

If your risk tolerance isn't pretty high, you probably shouldn't be investing in Bitcoin.  Unless you're investing a pretty small percentage of your worth, in which case "cashing out" a few % of your btc as we go up shouldn't even be a question raised.