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Crypto Taxes: How to hide your winnings

Georgios by Georgios · November 5, 2022

Crypto is regarded as an asset for federal revenue tax principles and is treated as a property by the IRS for average brokers. As a result, crypto taxes are similar to the taxes paid on every other profit made on the buying and selling of capital resources. Several players look for ways to reduce their crypto taxes to keep more of their casino winnings and maximize their profits. However, to achieve this, you need to understand how your crypto winnings can be linked to you by the IRS. 

Evidently every country has its own sets of laws and Tax systems; however, the core of it can be boiled down to two key points you should definitely look into:

  • Capital Gains Tax: A tax based on the difference between the cost of an asset and its selling price, which may range from 0% to 40%+ depending on your country and the time that passed between the initial purchase and sale. Furthermore, every trade or conversion between cryptocurrencies is, in most countries, a taxable event, which means it should have been declared.

  • Reporting Obligations: An obligation to report your crypto holdings independently from your annual tax reporting obligations. Luckily not the standard in many countries but still an aspect to be considered as several countries have it while others are developing this requirement. 

How do local Tax authorities track players for their crypto winnings?

Well, this is quite complicated, as it depends on the level of knowledge and resources each country has. Currently the tracking is still mainly done through fiat and bank statements, every country has a set of defined rules by which banks are meant to automatically report on transactions that go above a set limit. These reports per se do not automatically trigger an investigation by tax authorities but it will definitely be scrutinized if you ever are under investigation.

Additionally, many countries are working closely with the main crypto exchanges to gain as much access to your exchange account as they do from your local bank accounts; in terms of transaction information and capacity to freeze funds.

Regardless of the country you live in, you should take action and prepare as if your local Tax authority has the capabilities and knowledge from 5 years into the future. Meaning you may be able to avoid paying taxes in 2022 but they may pull out your records in 2025 and still fine you for not properly declaring and paying your taxes.

Whether you trade, gamble or bet cryptocurrencies, your winnings will be subjected to capital gains taxes. If you pay for commodities and services with your crypto winnings or swap your crypto winnings for fiat or other cryptocurrencies, you're obliged to pay taxes. Your taxes will be according to how much your casino winnings have increased since you won them. However, there are several ways you can avoid paying taxes on your crypto casino winnings or minimize them.

Tax Evasion VS Tax Avoidance

There are several ways to minimize your tax bill and therefore it is important to make the distinction from illegally evading your taxes by concealing or underreporting your finances as opposed to avoiding having to pay taxes or minimizing your tax bill by following the law.

How to reduce your crypto casino winning taxes 

Long term investments

One of the easiest ways of reducing your crypto-winning taxes is to delay them until they are long-lived assets. Several countries like Germany or the US, have different capital gains tax based on whether the asset being sold was bought at least a year prior or not. If you hold your crypto winnings for over a year, you are guaranteed to pay fewer capital profit taxes. Because cryptocurrencies are unstable, and their prices could rise or drop over some time, players should consider long-term investments after acquiring crypto casino winnings. 

Loss Harvesting

If you store your crypto winnings for long-term investments and their value decreases, accumulating your tax loss could be a remarkable way to reduce your entire taxes. To achieve this, you need to trade your cryptocurrency at a net loss to obtain savings from your casino-winning taxes. While harvesting your tax losses, in comparison to other properties, cryptocurrency has an upper hand. Therefore, players can trade their crypto casino winnings, obtain revenue loss, and reclaim their cryptocurrencies. Be sure to check your loss harvesting laws, as some countries may not take a loss under consideration if it is immediately bought back in the following 30 days.

Trade your crypto winnings through 401-K or your IRA

Setting up a retirement account will assist you in building your crypto wealth without tax obligations. However, you must understand that you will not have access to your saved funds until you reach a particular age. Although normal retirement accounts usually have tax-free revenues deposited into them, every profit gained and subsequent cash outs will always be taxed.

On the other hand, the funds deposited into Roth IRA retirement accounts are often taxed, and all profits and cash outs are always tax-free. For instance, players who intend to trade their crypto winnings in a Roth IRA will not need to pay income tax until they withdraw their funds. However, not every IRA provider allows brokers to invest directly in crypto.  

The good news is, independent IRAs enable players to save their crypto casino winnings in different investments like other cryptocurrencies, real estate, and valuable objects. For players below 50 years old, they can contribute $6,000 yearly altogether to their IRA accounts, independent or not. Some of the independent IRAs include Coin IRA, Bitcoin IRA, and iTrust Shares.

Employ a crypto specialist certified public accountant 

Going through the tax code all by yourself can be exhausting, so hiring a crypto specialist will make your task a lot easier. Although it could be quite expensive to hire one, employing a certified public accountant will prove to be worth the money spent. A CPA conversant in crypto can help you identify the techniques required to reduce your tax obligations. 

Donate your crypto casino winnings 

Donating your crypto winnings could be a considerable way of lowering your tax bill and contributing to a meaningful cause. Practicing this will result in an unusual situation where the IRS enables crypto brokers to reduce their tax obligations. In such circumstances, taxes are not imposed on crypto trades by the IRA. Every crypto winnings given into donation a year after they were earned will be reduced according to their fair market valuation during the time they were donated. 

Obtain a crypto loan 

Players who are aiming to withdraw their crypto casino earnings should consider obtaining loans using their crypto earnings as collateral. Such a move is regarded as non-taxable by the IRS. However, you need to ensure that the loan interest rate is favorable. 

While 2019 saw the birth of crypto collateralized lending, most players have disappeared from the map, as they took massive risk with users’ deposits. Whenever you deposit crypto into a third-party service remember you are giving up ownership and accepting a debt from the company. Such a company may have other debt towards a large set of creditors and you don’t want to be fighting for your fair share against them in a Chapter 11 bankruptcy case .

Move to a region with low tax rates

Probably the most efficient alternative for crypto traders, gamblers or owners out there. Before anything else, consider what relocating entails, the US is one of the few countries that takes its citizens no matter where they reside. 

One option for them is to renounce their citizenship and become citizens of another country, but that introduces another tax. Several countries have Exit or Expatriation taxes, which are essentially a tax for individuals above a certain level on their whole net worth including unrealized gains from assets such as stock equity, real estate, etc.

Be sure to make your due diligence regarding your citizenship situation before moving to one of these crypto friendly countries:

  • El Salvador

El Salvador is now one of the safest countries in Latin America and is the first country to adopt Bitcoin and implement a national mobile wallet infrastructure for payments between crypto and fiat. Now Salvadorians and new residents are able to pay with Bitcoin and never be liable for capital gains tax since BTC is now recognized as a legal tender currency. El Salvador has a general 13% VAT tax, a progressive income tax of 10% to 30% and a capital gains tax of 10% as long as the asset has been owned for over a year.

  • United Arab Emirates

This country has been increasing its number of ultra-high net worth individuals thanks to its zero-taxation system. The UAE only has a modest 5% VAT tax, while there is no income, wealth or capital gains tax.

Check iPlayCrypto's collection of best crypto casinos in the UAE

  •  Hong Kong and Singapore

These two Asian tax-free pearls are also a great destination for crypto owners:

Singapore has a 7% VAT tax, a progressive income tax of 0% for the first 20,000 SGD (14,600 USD), all the way up to 22% for income over 1,000,000 SGD (730,000 USD) which is set to increase to 24% for the year 2024 and best of all no capital gains tax.

China’s Special Administrative Region of Hong Kong also has a similarly attractive taxation system for individuals: Hong Kong does not have any Value Added Tax or Good and Services Tax (VAT & GST) on most goods and services with the exception of liquor and tobacco. The government income relies on other sources such as corporate tax, income tax, land sale, state operated Lotteries, among others. 

Hong Kong income tax starts at 2% for the first 50,000 HKD (6,3900 USD), all the way up to 17% for amounts above 200,000 HKD (25,562 USD); and just like Singapore, 0% Capital gains tax.

While both of the territories have very attractive income and capital gains tax, it is worth pointing out that they are not cheap. These are relatively small and heavily populated areas which means there is more competition for real estate for example.

Another example is the car market in Singapore, where regular sub 50,000 USD cars are worth up to three times that amount in Singapore, because of the limited registration licenses that prospective car buyers have to bid for. 

Why are cars so expensive in Singapore?

  •  Andorra

The Principality of Andorra is a sovereign microstate between France and Spain. This country boasts one of the most attractive tax systems: 4.5% VAT tax, progressive income tax of 0% to 10% and a capital gains tax of 10%. 

  •  Portugal

Portugal has a general 23% VAT tax, a progressive income tax of 14.5% to 48% and a flat capital gains tax of 28%. However, under the NHR Non-Habitual Resident program, foreign professional who reside at least 6 months in Portugal per year can benefit from an exemption on foreign capital gains tax for 10 years; the main two requirements are to be on the list of designated High Value professions and to reside in the country at least 6 months per year.

Update: The NHR program is set to be terminated by 2024; those planning to take advantage of this tax incentive have until the 31st of december 2023 to move and apply for the program. The beneficiaries of the incentive that got granted NHR status before 2024 will still keep their 10 years of tax exemptions as originally intended but no further applications will be accepted after the deadline.

  •  Malta

Malta has, for a long time, been a Mediterranean pioneer in crypto regulation and adoption. Multiple crypto companies have established their EU headquarters in Malta as it is considered crypto friendly from a regulation and taxation perspective.

Malta has a general 18% VAT tax, a progressive income tax of 15% (for foreign income) to 35% for income earned in Malta and finally sales from crypto held for more than a year are exempt from capital gains tax.

  •  Germany

A welcomed surprise for EU citizens is Germany that has no capital gains tax for sales of crypto held for over a year; short term gains are only exempt up to 600 EUR.

Germany has a 19% VAT tax, a progressive income tax of 14% to 45% and a 25% Capital gains tax.

  • Vanuatu & Seychelles

If you are after a new home in an Asian paradise archipelago, Vanuatu & Seychelles have both equally enticing tax systems: Around a 15% VAT tax but no income, capital gains or property tax.

  • Switzerland

Switzerland doesn’t really apply Capital gains tax to crypto transactions of private investors, as long as:

  1. The net capital gain is smaller than 50% of your income.

  2. Asset was held for over 6 months.

  3. Wasn’t financed with debt.

  4. The trader turnover is smaller than 5 times your holding.

So, does this mean that there is zero crypto taxes in Switzerland? Not really, private investors still have to factor in their crypto holding into their personal wealth and pay wealth taxes accordingly. The Wealth tax varies by Canton but can be anywhere between 0.3% to 1% of your holdings.

Less Tax attractive countries

The countries above may seem like tax havens or slightly better versions of your local tax system. Here’s a look at what the tax system on capital gains looks like in the most popular countries around the globe.

  • United States

The land of opportunity and the American dream per se has no VAT tax but something similar at a much lower rate, a sales tax of around 7.5% depending on the state in question.

Regarding capital gains, the US has 2 progressive tax rates for short term and long term capital gains. For gains on securities and commodities held for 365 days or less the rates go from 10% for the first $10,000, all the way up to 37% for amounts exceeding $578,000. Long term capital gains on assets held for over a year are taxed from 0% for the first $44,000, followed by 15% for the following amount up until $492,000 and a flat 20% beyond that.

Consider also that US taxes citizenship, meaning US citizens are required to pay federal taxes even if the citizens live permanently in a different country. There are international agreements on which country gets to tax what type of income and prevent double taxation but the tax obligation remains until death or renouncing citizenship, which also requires them to pay an exit tax on all their assets. 

  • United Kingdom

The United Kingdom has a 20% VAT tax on most goods and services and like most countries has a progressive tax system.

For the income Tax, the UK imposes a 20% for amounts between £12,571 to £50,270,  followed by 40% for amounts up to £125,140 and 45% beyond that. 

Capital gains have a tax free allowance of £6,000; any amount beyond that is taxed 10% up to £50,720, followed by 20% for the additional income. 

  • Cyprus

Cyprus is the only EU country that made headlines for imposing Capital controls on its citizens and partially seizing foreign depositors uninsured money back in 2013, it is the living example that money in the bank isn’t money and isn’t yours.

Cyprus Standard VAT tax is 19% and 9% for basic goods and services. The income and capital gains tax stand at 20% of the income exceeding 19,500 EUR, up to 35% for income exceeding 60,000 EUR

  • Turkey

Turkey has a generalized 18% VAT tax for most goods and services and 1% to 8% VAT on basic goods such as food and newspapers (I didn’t know newspapers were a basic necessity either).

Turkey hasn’t yet delivered clear legislation on the matter of cryptocurrencies which effectively places crypto in personal income tax and capital gains tax territory. Capital gains taxes in Turkey are also based on a progressive system starting from 15% for the first 32,000 TRY ($1,100), all the way up to 40% for any income or capital gain above 880,000 TRY ($31,130). This makes it the most harsh tax system of the list, so far.

Spend them

You can hold cryptos without having to declare them anywhere. Using an anonymous wallet can guarantee your stash won't be related to your identity. However, the moment you want to cash out is the moment when it's most difficult to retain this anonymity. What if you don't cash out though? Nowadays there are multiple businesses that are accepting cryptocurrencies as payment or intermediaries that will accept crypto for it. You can purchase almost every type of software/games with crypto, buy gift cards on thousands of brands or simply go to intermediary sites to purchase computer gadgets, hotel stays or flight tickets to travel the world.

Final thoughts 

Although you will be subjected to tax obligations whenever you trade your crypto casino winnings, there are several ways to reduce your taxes. You could decide to obtain a crypto loan, employ a CPA, donate some of your crypto casino earnings, or obtain returns in a penniless year. However, whenever you choose to invest in crypto, gamble responsibly.

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