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Despite recent corrections in the crypto markets, you could have big gains in Bitcoin and other crypto-currencies. But taxes are an ever present danger, and it is clear that the Internal Revenue Service (IRS) is looking for reports. With all the concern of so-called 1031 tax-free exchanges that can no longer be used for cryptocurrency, are there any other ways to transfer your crypto without triggering taxes? Here are some ideas, each way has advantages and disadvantages.

Contributing to a Society or Partnership

How about contributing your cryptocurrency to a corporation or partnership that you control? In general, the transfer of ownership to a corporation in exchange for its shares is a taxable event.

In other words, the transaction is treated as if you were selling the property to the corporation for money. The difference between the value of the share you received and the tax base of the property you transferred to the corporation will result in a gain or loss. It means taxes. Of course, you do not usually want this sales treatment.

Fortunately, Section 351 of the Tax Code generally allows people to transfer property to a corporation in exchange for shares without triggering tax, even if the property is appreciated. The corporation may be a corporation S (essentially taxed as an intermediary corporation) or a corporation C (which itself pays taxes). The company can be newly organized or already existing.

Of course, certain conditions must be met. But if you meet them, some gains on an exchange of ownership for the stock may be delayed. The IRS can impose it later when the shareholder ultimately sells the shares received in the stock market. No gain or loss is triggered until you receive only shares in exchange for your property and you have control of the company immediately after the exchange.

Control means ownership of shares owning at least 80% of the total combined voting rights of all classes of shares entitled to vote and at least 80% of the total number of shares outstanding of all other classes of shares of the company. If you, with others, transfer property to a corporation, you can do it as a group. So, you do not need to have control personally.

The same kind of thing can work for a partnership or an LLC. Contributions of property or money in exchange for partnership interests are usually non-recognition events. In a manner similar to the corporate rule, contributions may be tax free for both the contributing partner and the partnership.

For partnerships, this rule of non-recognition is found in section 721 (a) of the Tax Code. It usually applies regardless of whether the contribution is made on the formation of the partnership or after it has been in existence and has been operating for some time. But there are potential pitfalls, even more with partnerships than with companies. For example, this non-recognition rule does not apply to transactions between the partnership and a partner acting outside of its partnership status, or where the alleged contribution is a disguised sale

. ), the non-tax rule also does not apply to the gain on a contribution of property to a partnership "investment company", where the contribution results in the diversification of the assets of the partnership. transferor.

How about gifts?

You can give a crypto as a gift, and this does not trigger any income tax. This is accurate, no income tax for you as a donor, and no income tax for the beneficiary. Of course, when the beneficiary transfers or sells it, then there would be income taxes

And at that time, the donee should calculate the gain or loss. What is its tax base, since it was a gift? The tax base is the same as the one that was in your hands when you made the donation.

Do not forget that to avoid income tax, a gift must really be a gift. The tax law is littered with cases of people who claimed that something was a gift, but who ended up with income taxes. Donations not being subject to income tax, it may seem tempting to try to characterize the money or goods you receive as a gift. But beware: the IRS hears a lot this excuse "it was a gift".

And the IRS is unlikely to be persuaded unless you can document it. In addition, the IRS expects that a gift will occur in a normal setting similar to a gift. For example, if an employer or a former employer gives a loyal employee $ 10,000, is it a gift? No, it's a bonus, treated as a salary. Even trying to document it as a gift may not change that result.

True gifts can not result in any income tax, but there may be gift taxes. If you give a crypto to a friend or family member – anybody – ask him how much it's worth. If the gift is worth more than $ 15,000, you must file a tax return. For 2018, $ 15,000 is the amount of the so-called "annual exclusion". You can donate this amount each year to an unlimited number of people without a mandatory declaration.

Any donation exceeding this amount of $ 15,000 even if you do not have to pay tax on donations. Rather than paying for it, you would normally use a small portion of your lifetime exclusion from the gift and estate tax. For 2018, this number has increased dramatically. The amount you can transfer tax-free during your lifetime or upon your death is $ 11.2 million per person. That's $ 22.4 million per married couple.

Donation to a charity

And if your gift is not to a person, but to charity? If you give to a charity, it can be very tax efficient. If you entrust cryptography to a qualified charity, you should normally get an income tax deduction for the full fair market value of the crypto. If you bought it for $ 500 and you donate to a charity of 501 (c) (3), while it's worth $ 15,000, you should get a deduction of 15,000 $ for the charitable contribution. In addition, you will not have to pay the capital gain or income tax on the $ 14,500 gap. It's a good deal. This is why the most savvy people, Warren Buffett think, want to make a well appreciated gift rather than money to charity.

Remember, if you use crypto to buy something, the IRS considers that a sale of your crypto. You must calculate the gain or loss. You may have bought something with your crypto. But you made a sale in the process!

The opinions and interpretations in this article are those of the author and do not necessarily represent those of Cointelegraph.