How are people getting around the tax implications of selling? The tax hit can be huge if you've made a few hundred grand. I've heard offshore LLCs are the way to go but there's still a ~20% tax on moving funds to say the Caymans. I figure the whales have a way around this.
Accountant here. It used to be heavily unregulated prior to 2023. That is to say, if you bought and sold at the right exchange they wouldn't even issue you a 1099-B and it would be up to the IRS to figure out who owned the profits and how much the profits were. Due to changes in tax law, starting last year exchanges are required to provide you a 1099-B that tracks these transactions.
https://turbotax.intuit.com/tax-tips/investments-and-taxes/crypto-tax-forms/L8tQmALU3
However, depending on how the exchange provides your 1099-B information, they might not have provided the cost basis to the IRS.
https://www.irs.gov/pub/irs-pdf/f1099b.pdf
Page 2, Box 12. If that box is checked, you're essentially screwed as the exchange has provided both the cost basis and the proceeds to the IRS, so there's no room to "fudge the numbers". However, if your form does not have that box checked that means the IRS has no clue what you paid for the BTC to begin with. If it's worth $100,000 in proceeds, you can tell them you paid $100,000 for it and pay $0.00 in taxes. However, this is considered tax evasion and could have implications of a maximum sentence of five years imprisonment and a fine up to $100,000 for individuals or $500,000 for corporations. Just ask
Todd Chrisley. Of course, if you are smart about it you're not going to say you made $0.00 on $100,000 in proceeds. But you can certainly embellish without much audit risk as long as you aren't ridiculous about it. If you really paid $50,000 maybe you say you paid $80,000. $20,000 in Capital Gains is much more manageable than $50,000.
Like most forms off tax evasion, if you are smart you take amounts out that are under thresholds in which your return would / could be randomly audited. If you have kids, it would be smart to buy some in their names to flatten the tax bill (old farmer's trick, put your kids on the payroll and take advantage of their $13,850 standard deduction, otherwise it goes to waste). A good Enrolled Agent or Certified Public Accountant will know what these thresholds are and the cool ones will even talk in code to let you know what will and won't fly. The IRS, for instance, isn't going to look twice at a tax return with an AGI of $80,000. It's not cost effective for them to do this, however, they will certainly look over your return if you are claiming an AGI of $500,000+ as in that tax bracket it is certainly worth their while to put a magnifying glass under every dollar.
With that said, I am sure there exists shady BTC exchanges out there that won't even issue you a 1099-B. I have no interest in this endeavor, but it would be aiken to working for somebody who pays you under the table and doesn't furnish you a 1099 for services rendered. Kind of like offshore betting in Costa Rica before sportsbetting became legalized in the states, the IRS has less jurisdiction over international transactions, you can probably find a country that doesn't have BTC regulated and find a way to buy your BTC there. But then you have to find a way to money launder the money back into the United States, so if you get caught you're now charged with multiple felonies. Essentially, as long as you're not some kind of millionaire making $500,000 a year and/or you don't receive a 1099-B or if you received one and 1099-B Box 12 is not checked, there is plenty of room to "slide one past the goalie". It really depends on your situation, but as you all know an exchange that is shady enough not to properly report to the IRS is probably shady enough to screw you over in other capacities (steal your money, go bankrupt, etc). Think FTX and Sam Bankman-Fried:
https://www.reuters.com/legal/ftx-f...did-not-apply-him-prosecutor-says-2023-11-02/
If you wanted to be an absolute maniac, the big grift would be to not file your taxes at all. This essentially starts a 6-year window. That is to say, the current IRS statute requires you to have filed for the previous 6 years to be considered in "filing compliance". If you can get past 6-years without the IRS filing an SFR (substitute for return, it's where the IRS files a return for you with the information they have on file) then you're home free. This, again, is going to be largely dependent on your income. If you only made $80,000, again, the IRS doesn't have the time to really grill you or assign a Revenue Officer to bust your balls, however without proper tax returns, good luck getting a loan to buy a house.
This strategy was very effective during the COVID-19 days, the IRS was backed up millions of tax returns back then. I had a few clients who we sent returns to the IRS and they didn't touch the things for nearly 2-years, some of their returns never got filed at all, they either are still sitting in a shipping container somewhere or they got tossed into the circular filing system.
With that said, tax evasion is a very serious offense and should be left in the hands of a trained professional who knows the IRS internal processes well. I'm just kidding, don't try to do any of this, this is purely hypothetical like that book OJ Simpson book:
https://www.amazon.com/If-I-Did-Confessions-Killer/dp/0825305934 Try finding a CPA who used to work for the IRS, they usually know all the relevant thresholds and/or still know people at the IRS to pull strings - provide insider information. But assuming your proceeds aren't ridiculous and Box 12 isn't checked, your best bet is to claim your basis is about 70% to 90% of the proceeds and let the IRS tell you it's wrong. They'd have to go to the exchange and figure out what the "actual" cost basis was and a lot of times the exchange don't know / don't communicate well with the IRS so they just give up and go with the number you gave them.
But if you file without the 1099-B completely, the IRS are a bunch of dickbags and will just say the cost basis is $0.00 which would give you $100,000 in capital gains and tax you on the entire thing. That's the one thing you definitely
don't want to do.
ETA: This is probably a good place to start if hypothetically speaking someone wanted to go the money laundering route.
https://nomadcapitalist.com/finance/cryptocurrency/countries-that-dont-tax-bitcoin-capital-gains/
