Topic: Planning your Bitcoin Withdrawals (Read 8330 times)

I willing to sell my bitcoins when the price of bitcoins hits a lot higher maybe when the price of bitcoins would be around 2000$ at the end of october .well with that amount of money i would like to pay for my tuition fees.

That is correct, and it is important. That needs to be managed at a level above the tool's usage.

For example, let's say you decide you have 13 BTC that are now in long-term gains.
Fire up a spreadsheet that defines a starting balance of 13 BTC and use accordingly.

...it's just a tool. Providing convenient maths to define, ahead of time exit points. Emotions run highest exactly when people should be buying and selling.

No tool takes the place or responsibility of a human decision - they merely serve as aids in making those decisions.

You need to take account of the price you bought as well, plus capital gains taxes. Most countries will allow you to take a tax-exempt capital gain up to a certain threshold. So if you sell slowly and are under this threshold with sales each year, there is no tax to pay.

Taxes? The spreadsheet doesn't take taxes into account. They make a big difference.

For newcomers:

Newest version of the spreadsheet: https://docs.google.com/spreadsheets/d/1JDYALoV4KR_pvX5vuQww99t4hwqqmuHuAI9CZWhFgt0/edit#gid=0
Original version: https://docs.google.com/spreadsheets/d/1jv97ERhahE7pP5xAVIXtHEE89Ew4CHiz7imtwsYw8zg/edit#gid=4

(This tool is a guide, I am neither an accountant nor a lawyer, all decisions are your own, etc.)

I've not played with the formal 'Rebuy Plan' tab since 2014. The additions to the auto-calculated, listed Rebuy targets is as deep as I've gone in preparing for this rally.
If there are problems in the Rebuy Plan tab anyone notices, kindly bring them to my attention and I can work on them.

Looks like you are right.  Taxed at a rate of 0% (in the lowest two earned income brackets which I'm sure I can arrange in 2014.)  Man, that's gonna hurt!

It also looks like I'll be paying the Obamacare surcharge if I sell a few hundred large, as well as state and local taxes though.  I think I'll survive the trauma.

That's true but at least you don't get taxed twice, since there is a credit/deduction for taxes paid to another government.

Here's a link back to the start of the thread. I've made an updated version of the Bitcoin Withdrawal Strategy spreadsheet.  It now has an Instructions page. Along with a Withdrawal Plan tab, there is now a Rebuy Plan tab.  Given our current rally, I thought a tool like this might let you play around with different percentages, and find what sort of risk/reward meets your balance, and maybe help you settle in one the size and location of your sell points, and/or rebuy points. 

I know a tool like this isn't really for everyone. It's certainly not for someone intending to hold all their coins long-term. They just need grit ;-)
And other people are perfectly content trading without a plan. To each his own - it's certainly a thrill ride.

But me, I'm a data nerd. There's no sense fighting it...so I build tools like this instead, to see what different options look like.
Going forward, I'm hoping that anyone having success with the tool might share what they learned.  What strategies, percentages, numbers worked best? Considerations you made? Tradeoffs?
If you kicked ideas around and settled on a solution, chances are really good that what you'd share here would benefit someone else that's a few steps behind you, kicking around those same ideas right now.

Anyhow, I hope you find the spreadsheet helpful.  Feedback on the tool is always welcome, just send me a PM.

Amazing you would post this today - thanks for the link.

My personal implementation/usage of the spreadsheet, that is precisely what I'm pondering right now.  My two criterion are different...but the concept remains the same.
If I am long-term bullish on Bitcoin, and I'll only take a life-changing action at certain price points, then it makes sense to defer or lump all sales up to that price point.  This further pushing out of the sales might be of benefit from a tax standpoint, and absolutely is of benefit from the number of Bitcoins that remain in your wallet post-sale.

OT: this article may be of interest to you: http://blog.asmartbear.com/rich-vs-king-sold-company.html
It's about when to exit. Look at the graph "How the cash in the bank affects your lifestyle".
The major idea of the article is that it's not linear: there are 2 major theshold that do make a difference.
1)When you can own your house
2)When you don't have to work for money (i.e. maintain your current lifestyle indefinetely).

So, to plan withdrawals, you have to figure out
1)How much $ you need for each thresholds
2)Which percentage of BTC you want to keep.

Say, if you need $500K for first threshold and $2M for the second and happy to sell 1/2 of your BTC, you have to sell in two big lumps: when your BTC holdings reach $1M and when they reach $4M.

Yes, the public blockchain is excellent evidence for when you acquired them.

If your plan is long-term holding and not trading, how accurate a trail would separate cold/paper wallets for each year be? I know that tax laws do not (yet) directly account for btc, but it seems the blockchain would be an irrefutable record. If you are trying to manage your capital gains and not necessarily what you spent for the coins it superficially seems like a good way.

To tax guy: "I sold coins from this year and that year, here is the record of when I acquired them".

Disclaimer: I am not a tax professional. I am not a tax amateur. I am a computer guy, I don't know.

I've found that the percentage I am comfortable holding tends to get stomped on by the percentage that alt coins wants to be

Getting back on topic what percentage of your assets are you comfortable having in crypto, particularly bitcoin? And how aggressively would you seek to rebalance if this ratio changed, which in a market this volatile is sure to happen? Also how much role do tax consequences play in your strategy? I'll bet theoretically it's possible to rack up a huge tax bill and come to the end of the year without adequate funds to pay it only buying and selling coins.

On the contrary, this thread seems to me to have remained relatively on-track.  Now we are drifting off to 'meta' however...

Your major mistake is being too nice to the guys that offtopick your threads instead of opening their own ones.

*shoot drink all over screen* *Ahem* Yes, indeed.

This guy is legit.

It appears that you are correct. Capital gains do not fall under earned income.

http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---What-is-Foreign-Earned-Income

Once again key word EARNED.  Yes it would be a capital gain not wages.  It would be INCOME but not EARNED INCOME.

I think you are really asking "so I don't have to pay taxes?". Yes you have to pay taxes.  You pay taxes on ALL INCOME not just EARNED INCOME.

Wait, so if I start a company and then I somehow go public, and sell my shares, that's not treated as earned income?

Yes.  Everything is income (capital gains, wages, dividends, interest, business profit, gambling wins, etc).  They key was EARNED.  EARNED usually means wages/salary/bonus.

 

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.

Good question, I have only had to deal with it for my income. But I thought that if you sell within a year of buying you have to claim it as earned income.

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?



Anyone looked into offshore LLCs and setting up a "Google" type arrangement?

For instance, the first offshore LLC #1 based in Ireland holds all Bitcoins. Lets call it Bitcoin Holdings LLC.

LLC#1 pays a management or licensing fee to LLC#2 (managed by ... lets call it Bitcoin Management LLC), based in Panama or Bermuda. With this type of arrangement, most of the profit goes to fees to LLC#2.

Effective tax rate under > 5%.


What do you think?

Why are we withdrawing when we can just keep buying bitcoins lol.

Solid. 

This is false.

You are supposed to pay capital gains taxes on any gain that you make, even if it is for a purchase.

If you buy 1 BTC for $10 then buy a $300 watch with that 1 BTC you have to claim the $290 gain when you make the purchase.

All that said...the guy selling you the watch is not going to be reporting that purchase to the IRS.

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

That is a good question.  If it is a lot of value I would consult a tax attorney.

That seems to me like it would be a legitimate loss and could not be subject to tax in any circumstance.  I've yet to hear any guidance from any government dictating how to store BTC in order to guarantee no loss.

Not only is this a potentially handy avenue for plausible deniability, but it is also a grave and legitimate risk.  Indeed, that is part of the reason it is so plausible.

I've left a trail of lost BTC along the path, and a much bigger trail of donated BTC which I've not kept records of.  That is, in fact, the truth, and I suspect it is for many of us relative old-timers.  Fortunately I happen to be able to account for the BTC I acquired with some precision having done so in a relatively narrow window of time and mainly through an exchange who kept convenient records for me to download.

---

As I was writing this, it just occurred to me that one approach a government might take to 'attack' Bitcoin would be to say, "Ya, it's cool to have BTC, but you need to store them in our on-line wallet service since we can guard against loss and illegal conduct."  And relatedly "If you have nothing to hide, you have nothing to fear."

An advantage to this method of attack is that most people do not know much about Bitcoin but do see it as a potentially dangerous thing often used by criminals.  And of course, they have no BTC themselves so it's not as objectionable to the.  Such a strategy might appeal to a broad swath of individuals many of who would consider a total criminalization to be unfair and uncalled for.

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

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'm sort of a newbie but I'd dare to give this advice to anybody that is going to start "trading". Read all kranen.com trading guide and in particular pay close attention to order types section. (I'm not affiliated with kraken by the way)

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.

FWIW, this is exactly (with some fuzz in the numbers and percentages) the idea for wealth/risk management that appears most logical to me at this time.  It is for that reason that I took the time (and money) to visit with my CPA to come up with a rational plan.

It will be interesting to find out if there is a notable sell-off right after the start 2014 from people thinking like me.  I almost decided to not produce the post as it might induce others to compete with me in such a strategy.  In the end I figured it probably would not amount to much, and in a month and 3/4 Bitcoin will be much more a Chinese thing than it is now anyway.

Ahh Zedicus! You are back, and with an entirely different posting manner? Did you start or stop the meds

So last time we spoke you were going crazy about market manipulation, buying selling etc I'm fascinated  to know what you did in the interim. You seemed very agitated at the time. See I had a spreadsheet very similar to the one above all the way back then, and then some, and I'd been following it. So when the bottom dropped out the market All I had to do was wait, and do nothing, without fear. I think at the time that was referred to as 'being chicken'
 
So now here we are back at the ATH and back on schedule... my next sell order is in at $311. I kind of suspected we would come back, but the measured selling prior to the crash meant that neither could I be too upset if we didn't. What made me chuckle at the time was the fervour with which you pursued the idea that the correction was a grand conspiracy theory. Now I guess you have had chance to reflect - and given your much calmer posting manner - id be interested to hear your take on things.

Not hating, I respect your passion. I just felt that, having been through the run up from 1 to 32 and back down again, you were a little misguided with the whole conspiracy thing. If anything I think the recent correction was pretty tame compared to last time. Maybe its a head an shoulders forming eh, and we still have to go back and re-test $32.

Now wouldn't that be a thing!

Depends on how much up is up.

Say someone has a net worth of $100K and they invested a small portion say 5% or $5K into BTC back when it was $1 so 5000 BTC which today are worth 1.25M.  Lets say the rest of this persons net worth is roughly over the prior 3 years so their new Bitcoin fueled net worth is $1.35M of which 92% is tied up in Bitcoins.  

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.

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.

Not yet.  Someday I probably will but I doubt I will be able to tell you about it.

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.



 

FYPFY.

In imaginary land yes but in the United State no.

Income from all sources (INCLUDING CAPITAL GAINS, DIVIDENDS, BUSINESS INCOME, WAGES, ETC) count towards your taxable income.  If that combined number is the cutoff for 15% bracket (~$73K) you don't get to avoid capital gains tax.

If you don't believe me take a look at a 1040 form.  Here is a link.
See line 13. What does it say?
See line 22. Does line 22 include line 13?
See line 43. What is that line.   If line 22 (and thus line 13) a part of line 43?

If you still don't believe me or the IRS forms maybe an "expert" will convince you I am not crazy.


http://blog.taxact.com/long-term-capital-gains-tax/



* Yes "shit ton" is a standard unit of taxation used by the IRS

You don't seem to get it.

Here are two scenarios:

You make $100k a year, you have 1 million in bitcoins.

You keep your job, you gradually sell off your bitcoins paying 15% long term capital gains (plus 5% state, for me, at least) every time.

OR

You quit your job.

Your income is now 0.

You sell ALL your $1 million in bitcoins. You are now RICH! You pay 0% in taxes on it!

The next year you get another job making $100k.

You've just paid 0% on your $1 million bitcoin investment.

In scenario 1, you get roughly $800k plus $100k salary every year.

In scenario 2, you get the full $1 million and your only penalty is you skip your $100k salary one year.

Now imagine that instead of $1 million in bitcoins, you had $10 million. Or $20 million. Can you see now how the "rich" don't work and pay 0 taxes?

@DT:  Sorry, I can't resist....

Are you as much of an expert on Death as you are on Taxes?

:-)

Sorry LOL

roy

Just a guy who got burned, having to write a giant check to the IRS when you were totally not expecting is a motivator to do some self research.  It was a long term gain and I naively thought that meant 0%.  It didn't.  I found out when the IRS sent me a "friendly" letter advising me I was delinquent and demanding payment in full.

Ironically I actually did work for H&R block when I was 19 (and learned absolutely nothing useful "tax pro" school is about 3 weeks long so "tax pro" doesn't mean a whole lot).  Use a CPA is you want a real professional.


Well I gave you the exact forms and line numbers.  You could pretend and fill out the forms yourself using $1M in long term gain and $0 in wages and see what you get.  Hint it won't be taxes = $0.00.  It should take you all of 5 minutes.  The answer is right there in black and white.

When you look at the ultra-rich they tend to live internationally. I do not plan on cashing out of Bitcoin, I already have cash...it is called Bitcoin.

I like the idea that when I want to cash out, I will not need to.

The bolded pertion is incorrect. Trust me I know for painful personal experience (>$100K tax bill).  The simple version is they are taxed at their own rate but ALL INCOME counts towards the taxable income number (and in this case WHICH capital gains rate will apply).  For the simple version take a look at line 22 of Form 1040.  It is total income.  Note it is a sum of lines 7 to 21.  Line 13 is Capital gains.

Total Income (see line 22) = Wages + Capital Gains + Business Income + etc
Taxable Income (see line 43) = Total Income - Deductions - Exemptions
Taxes (see line 44) = Taxable Income * Rates <- the different types of revenue are computed at their own rate but that doesn't change the fact that all income from all sources in all forms is part of taxable income.

The complicated version (only follow if you enjoy tax hell).
It really only makes sense if you have a copy of "Schedule D", "Form 1040", and "Capital Gains Tax Computation Worksheet" in front of you.  You can google those terms and get copies of the forms.  
It begins in the "Schedule D".  Gains are separated into long term and short term capital gains but the total capital gains is computed in line 16.
The total capital gain (line 16) from Schedule D is transferred to the "Form 1040" under line 13.  You can see this both in Schedule D instruction for line 16 AND the fact that line 13 on 1040 is labeled "capital gains".

So on form 1040 the total capital gain is copied to line 13.  You will notice that line 22 is total income.  It is the sum of lines 7 to 21 (wages, capital gains, dividends, business income, etc).  On the next page deductions, and exemptions are subtracted from total income to finally end up at "taxable income" (line 43).  Line 44 is taxes.  If you only have regular income you can just look that up but if you have long term capital gains you need to use the ultra fun "Capital Gains Tax Computation Worksheet".  

So on the "Capital Gains Tax Computation Worksheet" for those following along in the home game, you will see you it starts with your taxable income (which includes all forms of income including capital gains) on line 1.  On line 8 the max of the 15% bracket is computed, and subtracted on line 11.  So if you have more income than the max of the 15% bracket line 11 will be positive.  The rest (lines 12 to 19) is computed using a combination of the capital gains rate for >15% bracket or regular income rate.

Capital gains are calculated at the capital gains RATE however they are included in taxable income for the determination of what that rate is.  At one time for long term it was 0% or 15% but it is now 0%/15%/20% plus a bonus (on a completely different form 3.8% to pay for ObamaCare) and then you can add states taxes to that as well as MOST states simply use federal taxable income (line 43) to determine state taxable income.  Worse for 2013 onward is short term gains are regular income PLUS the 3.8% bonus ObamaCare tax so you end up paying more than regular income.

IANATA, but my understanding is that your capital gains don't count toward your salary.  You could pull out a million dollars worth of BTC and it's fine as long as you held it for a year and your other income is below 34K/38K whatever it is.

(Actually, $69K joint as pointed out here:

https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States#History_of_capital_gains_tax_in_the_U.S.)

Everything I read says that long-term gains are capital gains and not ordinary income, which means that they don't count toward the $34K/$38K/$69K.

I've puttered around with PM's for a long time, and the chain of logic you propose does not escape me.

Being a lib, my justification for being double-taxed is that, in theory at least, I live in an environment which made my speculation possible and lucrative because it is somewhat held together by the taxes I pay.

On a more practical level, I cannot enjoy the fruits of my wisdom/luck with a pitchfork up my ass.

Stepping it down a degree, I also cannot enjoy life as much when I have to walk over indigent people in the streets, nor can I (or will I) take it upon myself to right the various wrongs that bother me.  Again, there is much room for debate about how efficiently our government participates in such an effort.  I don't think it is zero, but I do think they could do better.  Especially if we could get money out of politics.  But we are going in the opposite direction fast.

I appreciate your input on the other items which I've snipped.

The goal was to have all capital gains at 0% for all income brackets.  The longs term gains at 0%/15%/20% depending on income and short term gains at normal income was the "compromise".  Simplified republicans wanted no capital gains tax on anything, the Dems wanted to keep it at regular income, and the complicated tax mess we have today is the compromise in the middle.  Personally I believe interest, dividends, and capital gains should be tax free but if you think the current situation is a scam you likely are going to lynch me so we will save that for another day (hint: you were already taxed on the income BEFORE you wisely invested it).


I think you should clarify with your CPA.  I doubt he is incorrect however you may have misunderstood the limitations.   If your gains are long term (>365 days) and your taxable income (from all sources) puts you in the bottom two brackets then there would be no capital gains tax (the tax rate would be 0%).  However there is no scenario (in 2013, 2014, 2015 or future) in which you can have an unlimited capital gains (say millions of USD) and have no tax liability.

Make sure you keep accurate and detailed records of your Bitcoin trades.  The burden of proof if on you.  If the IRS audits you (generally the chance of audit rises with income) and you can't PROVE your gains are long term the IRS will reclassify them as short term and you will owe the (possibly substantial) difference in tax liability, plus penalties, interest and possibly (if they believe you did it intentionally) penalties.

Note this post should not be considered tax or legal advice and is intended as educational only.

Correct.  There is no wealth tax in the US yet (well not until you die).  This is not tax advice (always consult with a tax professional blah blah blah) but you probably could "cash out" more than $72K per year (assumming no other income source) as long as you did things to offset the income.  For example cashing out an extra $10K and donating it to charity or cashing out $10K and putting it into an IRA (traditional not Roth).   The key thing would be reducing your taxable income NOT tax credits.  A tax credit may reduce the taxes owed but if you go over the "magic line" then the capital gains rate will jump from 0% to 20% likely more than offseting the benefit of any tax credit.  An example would be taking out an extra $20K to put solar panels on your roof.  Sure you could get a $5K tax credit for that but you just bumped your taxable income into the $130K range and now you owe 20% on all of it. 

As long as your taxable income puts you in the bottom two brackets (or tax law changes as it often does) you could avoid any taxes potentially forever.

For Canadians here is a site to calculate estimate tax rates. http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2013-Personal-Tax For capital gains the best province / territory is either Alberta or Nunavut. The marginal rate for 1,000,000 CAD for capital gains ranges from 19.5% in Alberta to 25% in Nova Scotia. For 100,000 CAD it ranges from 17.5% in Nunavut to 22.86% in Quebec.

Again, deferring to your expertise in the minutia, the whole short term/ long term thing has always struck me as a scam.  People of a certain level of wealth can easily sit on something of value for a few years.  How that justifies a 25% reduction in tax rate, I have no idea.

My understanding from my talks with my CPA is that anything I sell this year I should put 25% aside to pay taxes for 2013 (being unfortunate enough to have earned some money this year.)  If I wait until 2014, I can basically sell as much BTC as I wish without a liability as long as I am careful to avoid earning any money.  I may have understood this wrong, or not fully communicated that I might be considering raising enough money to put my even with what a pretty high income individual takes in.  It was also unclear what happens in 2015 and whether my inflow of $$$ in 2014 factors in.  We didn't look that far out.

If you care to correct my CPA, or my misunderstanding of my communications with her, I would appreciate it.  Note that she referenced a particular tax cut regulation which I think dated back to the Bush era and which was temporary but has been repeatedly extended.  And may have been or will be made permanent.  I didn't catch or forgot the name of it.

Well, I left out having a home paid off. If so, congrats!



Thanks for the clarification. You don't have to pay taxes on growth in value for capital assets until you cash them out, right? So go with $0 in wages, cash out $72K in capital gains each year, and leave the rest of the $10M in bitcoins untouched?

Woo hoo I am RICH and never knew it.  I need to call my mom!  Then again tvbcof post was about ULTRA WEALTHY I assume (and he confirmed with $500K tax post) he was talking about millionaires and billionaires.


That is incorrect.  Not sure how much simpler I can make it.  The 0% capital gains rate only applies to TOTAL INCOME (in all forms including capital gains) which would put you in the two lowest brackets.  

If you have $0 in wages and $1M in capital gains you are looking at as much as 53% short term capital gains rates.  Even long term rates are at least 20% + 3.8% (Obamacare bonus) + state rate.  IRS hasn't yet clarified on treating Bitcoins as other Forex transactions but if they do it would be >30% plus state for all tx long and short.

While you don't pay "regular income" tax rates on long term capital gains, ALL FORMS OF INCOME count towards the threshold for which bracket you will pay.  

Then we have a different definition of rich. I consider someone pulling in $70k in salary, with absolutely no debt, to be basic-rich. Add in millions in capital gains at 0% tax rate, and that's mega-rich.

This has been a great discussion. (And I hope it's just getting started!)

I think of this sheet as a planning tool for bitcoin withdrawals.
I consider shorter-term trading as a layer below that.
I consider wealth management planning as a layer above.

For those that consider all these layers, it is absolutely true that any withdrawals made must be in line with the overarching wealth management plan.

There hasn't been a ton of public thought and discussion on the wealth management aspect.  (I made the mistake of trying to offer that when I was still a newbie, and it didn't go so well.)  So, while the focus of this thread has gone in a bit of a different direction that I had originally intended, it's certainly been enlightening and enjoyable to absorb.

Once again "nice living" =/= rich.  Please try to stay on topic.  The claim made was the "rich" pay little to nothing in capital gains taxes.  That is a false statement.  Poinring out that the middle class has a low capital gains tax is "proving" to me something I never disputed.


Also not sure what you mean by "beyond that you get 0% long-term capital tax rate"?  If you are "beyond that" (as in more income?) you would be in the next tax bracket and thus would pay MORE not zero in capital gains taxes.

Yes, for just 1 year. Then the next 50 years I'll be back down in the bottom tax brackets.


A couple making up to $72,500 is in the 15% tax bracket, and without any debt, $72k is a very very nice living. Beyond that you get the 0% long-term capital tax rate. Score!

That was my whole point.  THE LOWER INCOME BRACKETS have 0% capital gains, thus a post about how the rate can be as low as zero doesn't really apply when talking about being rich.  Would you agree?

The upper income brackets have 15% or 20% long term capital gains and short term capital gains are at NORMAL INCOME RATES (which is up to 35%).  Now in 2013 you get to add 3.8% "bonus tax" for Obama care.   Also don't forget most states treat capital gains as regular income so throw in another 3% to 11%+ depending on your state.  It varies a lot by states so your luck may vary, everything from full income tax rate, to reduced tax, to no tax.

http://taxes.about.com/od/capitalgains/a/CapitalGainsTax.htm

So say you are in the highest bracket (single >$400K taxable income) and live in California and you hold a Bitcoin for 364 days.   Your "low" capital gains rate would be 39.6% federal + 3.8% bonus + 10.5% state = 53.9%.

Oh and the fun part is it likely is only a matter of time before IRS treats Bitcoin exchanges like Forex exchanges which means the 60/40 rule comes into play.  That will mean even long term trades are taxed at a mix of long & short rates and thus capital gains could be as high as 39.6% (including bonus Obamacare tax) plus state taxes.  Worse there is no way to reduce it by holding 365 days or more. 

Starting to get the picture?   Yes capital gains taxes are lower than regular income primarily because there is no Social Security or Medicaire but if you are making >$108K in regular income those taxes are capped anyways.  If you want to make smart tax avoidance strategies (as opposed to tax evasion) you need to drop this "rich don't pay taxes" meme because it is only going to cost you a fortune if you are every rich.

As for flat tax.  60% of Americans pay no income tax in the US.  You really think they are better under a flat tax?  The top 5% of Americans pay 25% of the income tax you really think they are worse under a flat tax?   The flat tax may be fairer but it isn't fairer in the sense most Americans think.

How are you going to pay off your mortgage?  By selling $200K worth of BTC?  That is going to put you above the first two tax brackets. 

Can someone live on $38K in taxable income.  Sure.  People live on a lot less.  It is hardly what I would consider rich.  If you are living on more than that well you are going to pay capital gains taxes. 

Not really interested in debating anymore.  tvbcof wants to believe the "rich" pay nothing in capital gains taxes well maybe someday he will be "rich" and find out that isn't the case.   It will be far worse if in the future IRS decides to classify Bitcoin capital gains as Forex capital gains (which logically makes sense) as the rates will go even higher (60/40 rule).

But "rich" people can drop themselves down into the lowest tax brackets. For example, if bitcoins go up high enough, I'll pay off my mortgage, have no other debt, and be able to reduce my regularly needed income to much lower levels and stay down in the bottom tax brackets while living very comfortably.

I think you are not picking up on how this stuff works to be honest.  Or deliberately neglecting to do so.  A person who can live on long term capital gains alone is not considered 'poor' by most people.

Beyond that, most wealthy people probably don't consider anyone who actually earns money, no matter how much, to be in their class.  And rightly so.

Looks to me like the tax program under discussion is configured to benefit family members of the wealthy.  Earning money is probably not a high priority for many of these folk and is likely considered with some amount of scorn.

I was never a big fan of the flat tax, but I'm starting to see at least a little bit of potential utility.  I had no idea how fucked up and unfairly balanced toward the wealthy things are.  That is probably no accident.

I've got no interest in being rich in jail.  Or making my attorney rich by keeping me out of it.  Different strokes for different folks though I guess.  To bad DPR cannot weigh in on the matter.

Ya, I had zero inclination to buy BTC since the end of 2011.  Prior to that my interest was fairly high.  I'm lucky that way sometimes.

You could argue that you could be "rich" in Bitcoin, just not report it.

My CPA, FYI.  I had a meeting yesterday.  Seems that certain 'temporary' tax programs (or un-tax programs) keep being extended and/or are made permanent.  I think we both though it was bullshit, but even if it was someone else's lobbying money, I'm willing to jump on the sled for a free ride.

For my part I'm going to dot every 'i' and cross every 't', but if it turns out that I can leverage being a non wage-slave, I can certainly arrange that.  For 2014 at least.

Key word in the two lowest tax brackets.  I doubt most people would consider the two lowest tax brackets as "rich".

http://finance.yahoo.com/news/first-person-advantage-0-capital-gains-tax-rate-214600255.html


So be sure to hold onto those bitcoins for at least a year.

Where do you get the idea that capital gains are tiny or non-existent.  Have fun with that idea. 

Tax implications have a lot to do with my strategy.  The tax system in the US is so rigged for rich people that if someone does not take a wage, the taxes on capital gains seem to be tiny.  Perhaps even non-existant?  Thus, I'll probably be waiting until next year to start in on any real sales and I'll do my level best to not make any money aside from my BTC sales.  This will keep me looking like a rich person and thus untouchable by the IRS.

What a sick fucking system we seem to have.  Oh well.  I'm not going to complain to bitterly until I'm done milking it.

I was pretty happy when I was using a 1% cashout every $10 increase, so I made a copy of the spreadsheet and switched it from % increases to fixed $ increases. It's a good looking plan.

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 is 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.

If you'd like your sells to have potential rebuy points, you can go a bit further, and set up the Rebuy tab.  It will generate rebuys for each of your sell points.  If you keep it updated, it can serve as a good parity check to ensure your order book is correct, while guiding the bids and asks.

Feel free to adjust the numbers in the green boxes, and play around for yourself.  If you end up using it to track your funds, you'll want to make sure to make a personal copy first, and ensure your privacy settings are as you'd like them.  (Oh, and if you find a bug or mistake, please shoot me a PM!)

2017: Bitcoin Withdrawal Strategy

Mostly for posterity (for now at least), a link to the original spreadsheet:

Version 1 - https://docs.google.com/spreadsheet/ccc?key=0AqpoRK3q-_aKdHdwd0VubzdJbkQ5OF9GRlplVXRVY2c&usp=sharing
Version 2 - Bitcoin Withdrawal Strategy spreadsheet.

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 price targets.  If you want to get creative, you could make a copy for your conservative long term withdrawals, and a separate copy, having far more aggressive rebuy targets for the trading portion of your portfolio.

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.

And of course, remember that your trading strategy must align with your broader-still investment strategy, consider tax implications, etc. That's not really the aim of this tool, or thread.  Here I hope to explore the various uses or strategies that people have found beneficial.  Hopefully people will be able to pick up a few new ideas that they can then evaluate and/or integrate into their trading approach.

If you follow pre-established buy and sell points 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!