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I purchased some crypto currency in late 2016 for just a few…

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I purchased some crypto currency...
I purchased some crypto currency in late 2016 for just a few hundred dollars and also in early 2017. Since then the dollar value of my crypto currency has grown a lot. I also made some crypto to crypto trades.Can I start an IRA LLC and retroactively contribute my initial crypto currency investment so that I can defer taxes on my crypto to crypto trades afterwards?Thanks.
Submitted: 1 month ago.Category: Tax
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1/18/2018
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago
Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 507
Experience: Adjunct Professor
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Hey! I'm Carter, I'm a CPA and can help you with this.

Unfortunately, the only way to put a cryptocurency into an IRA, LLC is to first sell it, put the money into the IRA, LLC and then buy the cryptocurrency again. So, you would need to recognize the gains you had.

Huff Post ran a great article on what to do to set up the IRA, LLC and how to contribute to it. You can find that here:

https://www.huffingtonpost.com/entry/bitcoin-ira-reviews-how-to-put-bitcoins-in-your-retirement_us_599dcd01e4b02289f76191ee

Hope that helps. If you need anything else, just let me know. If not, please leave a review. Thanks!

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Customer reply replied 1 month ago
I don't see how that could be valid, considering I know an LLC IRA can own property.
Customer reply replied 1 month ago
You are saying the currency has to go to the LLC first and the LLC has to make the purchase?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago

Yes. the LLC needs to make the purchase. If it wasn't like that, anyone who had a large gain on a capital asset would just put it into an IRA LLC and avoid tax on the gain.

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Customer reply replied 1 month ago
But I can transfer the crypto currency to a regular LLC and avoid taxes, right? Can I contribute it to a foreign LLC?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago

Correct, but it would not allow you to avoid taxes. If you transfer it to a regular LLC, then whenever you sell it, it will still be taxed at the gain that you currently have. For example, if you buy it for $100 and then transfer it to the LLC, the LLC's basis is $100. So you cannot avoid any tax that way. Same goes for the foreign LLC.

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Customer reply replied 1 month ago
Ok, so I could transfer it to a foreign LLC, for example, and the tax basis would also transfer to the foreign LLC. So I would owe taxes on what I already owe but the LLC would face the taxes on future gains?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago
Single Member LLCs are can either be a sole proprietorship, S Corp or C Corp. All but the C corp get taxed on your personal tax return. So, you transfer it to an LLC, foreign or domestic, as soon as the LLC sells the currency the gain will fall to your personal return and you will pay the tax.
Don't turn an LLC holding just securities into a C Corp or it'll lead to a higher tax rate on the securities than if you just let it flow through to your personal return.
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Customer reply replied 1 month ago
But if the LLC is foreign in a country where they don't tax crypto to crypto trades (or tax crypto at all) I could avoid taxes altogether instead of using a domestic LLC where all crypto to crypto trades create a taxable event?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago
Americans are taxed on worldwide income. So, even if it's in a foreign country, and if you're an American, then you will pay tax on it one way or another in America.
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Customer reply replied 1 month ago
What if I want to contribute it to a foreign corporation with cryptocurrency friendly taxes? If that c-corp complied with the laws of that country and converted crypto into real estate. If it's still under protection of the c-corp then there would be no pass-through income to me unless I took a distribution, correct?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago
You wouldn't be able to get the money out of the corporation. The second you take it out and repatriate it, you will be hit with a repatriation of foreign dividends tax. To go along with that, there are several complicated filings you need to do personally like Form 5471, where failure to file is $10,000 per year, and Form 926 that can carry penalties as high as $100,000.
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Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago
There is no way to get the gains you currently have tax free.
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Customer reply replied 1 month ago
I'm not trying to get the gains I currently have tax free. I'm trying to get future gains tax free.
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago
Then sell off what you have. Pay tax on those gains. Setup the IRA, LLC. Contribute what you sold the currency for to the IRA, LLC and direct the IRA, LLC to purchase the cryptocurrency. You can review the earlier article I sent in how to do that.
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Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago
If yoi need anything dlse, let me know. If not, please leave a rating.
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Customer reply replied 1 month ago
I don't think that helps because doesn't the IRA LLC have a $5500 contribution limits?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago
they do.
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