Wednesday, June 29, 2022

How To Reinvest Crypto Profits

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How to Trade Crypto: Bitsgap Trading Bot Reinvesting Strategy to Grow Your Crypto Profits

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Closing Window For The Crypto Tax Loophole

Given the growing popularity of cryptocurrencies, Congress is considering a tax law change that would make the wash sale rule applicable to cryptocurrencies. Closing this tax loophole would change one attractive element of this burgeoning asset class and generate significant tax revenue for the IRS.

Interested investors should be able to lock in capital losses and repurchase their holdings before years end without risk of encountering the wash sale rule. Starting in 2022, though, that might be subject to change.

How Do Cryptocurrency Taxes Work

For better or worse, capital gains tax rules apply to cryptocurrencies like Bitcoin and Ethereum. The Internal Revenue Service treats all cryptocurrency as capital assets, and you owe taxes when theyre sold at a profit. This is exactly what happens when you sell more traditional investments, like stocks or funds, at a gain.

How much you own in capital gains taxes depends on whether youve held your crypto for less than a year or more than one year. If you havent quite reached 12 months, your profits are taxed at short-term capital gains rates, a.k.a. your regular income tax rate. But if its been at least one year since you purchased your coins, youll qualify for a long-term capital gains rate thats lower than most income taxes, depending on your taxable income.

And just like if you sell any other investment at a loss, if your crypto investment has fallen in value when you sell it, you are able to claim a capital loss, which you may be able to use to offset other income taxes.

But cryptocurrency taxes comes with a couple of additional wrinkles.

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It’s The Wild West In Cryptocurrency Investing

Bitcoin, the largest market cap in cryptocurrencies, surged from $3,000 in mid-2017 to over $20,000 per coin in December and sharply decreased shortly thereafter, and nobody truly knows why. Some of the sharp price movements were driven by regulatory moves in Japan, South Korea and China. The cryptocurrency space is new and exciting to many, yet highly volatile and risky. Despite the risks, there are few players who have come out with net positive gains, and some lucky enough to make a life-changing amount of money. Theres a new generation of rich cryptomillionaires who have taken money off the table to protect their gains, and are looking for an investment solution. If you are one of the lucky ones that made a profit and think the bull runs are over, you’re probably asking yourself what to do with your newly minted cash.

Why Cant I Reinvest The Full Proceeds From My Stock Sale

Major and Minor Crypto Cycles Alt Seasons and Reinvesting ...

You can reinvest the proceeds from selling stock immediately, unless you are trading certain high-volatility stocks, such as leveraged ETFs and penny stocks. If youre trading one of these stocks, you may have to wait until the following day to get access to all of your funds.

High-volatility stocks are riskier investments, so rules established by FINRA require all brokers, including Robinhood, to create safeguards to help prevent customers from rapidly trading them.

You can see how much buying power you have available for a particular stock, and the stocks volatility category by checking out the stocks Detail page.

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Paying Attention To Fibonacci Levels

The crypto market, by its very nature, also tends to push prices to Fibonacci levels. If you pay close attention to these levels, especially concerning retracements, youll gain the hometown advantage when it comes to cryptos.

Remember that crypto markets are, to some extent, influenced by algorithms and automated trading bots. This market environment tends to push prices to Fibonacci levels.

In most cases, there will be some reaction as a result of different Fibonacci levels. This can provide a temporary liquidity pool for you to close a position and take profit.

In addition to Fibonacci levels, its also common to see price reactions at pivot points.

Buy Cryptocurrency As A Resident Of Puerto Rico

If youre not old enough to have a large retirement account and dont want to lock up a couple of million dollars in a life insurance policy, then consider moving to the US territory of Puerto Rico. The Caribbean island of Puerto Rico has a tax deal you cant refuse!

We US citizens are taxed on our worldwide income. No matter where we live, we must pay US tax on our capital gains, including gains from cryptocurrency. The only exception to this rule is found in the US territory of Puerto Rico.

Puerto Rico sourced income is excluded from US tax under IRC Section 933. Puerto Rico sourced income is any capital gain or business income earned by a resident of the territory that qualifies for Act 20 or Act 22. A resident of the territory is any US citizen who spends at least 183 days a year on the island.

Because the territory is excluded from Federal taxation, Puerto Rico is free to make its own tax laws for residents and offer any type of tax breaks it deems appropriate. And in 2012, with amendments in 2015 and 2017, this is exactly what they did. Its the amendments in 2017 that really made Puerto Rico the top offshore jurisdiction.

If you set up an online business in Puerto Rico, and qualify under Act 20, your Puerto Rico sourced profits will be taxed at only 4%. Distributions or dividends from this company to a resident of Puerto Rico will be tax-free.

Here is an amazing podcast with Paul Rosenberg, one of the original in Cryptocurrency.

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How Well Do I Deal With Regret

Whether we like it or not, regret is a part of every opportunity. Taking profit in crypto is capitalizing on a good opportunity. Regret often comes when you realize you could have gotten a lot more.

How well you deal with this has much to do with your investment plan. Tell yourself to stick to the target no matter what happens afterwards. Eventually, youll develop a sense of detachment from anything thats not part of the plan.

What Happens If You Want To Hodl

How To Take Profits In Crypto Secure Your Altcoin Gains!

The majority of people who chose to HODL in the current market slump still have memories of their wealth melting like an ice cube. Bitcoin has risen by nearly 84% over the course of 2018, and many investors who decided to save their bitcoins were able to sell them at low levels. similar to what happened in the preceding cycle.

However, holding onto crypto in the bear market could be a good alternative. Your investments may shrink in FIAT terms, but youll carry the same bag as before. It is also unlikely that you will have to reduce the dimensions of bags should the market decide to keep growing.

The HODL strategy is best suited to huge portfolios that dont need to sell any of their holdings anytime in the near future. You can make use of the ability of staking to grow the amount of money they hold by remunerating their investments. This will become apparent when cryptocurrencies are solid in their fundamentals and extremely rewarding for their users. One of the most popular examples is Ethereum, which has completely changed to a consensus based on Proof-of-Stake. Therefore, we tend to think that Ethereum will do much better in the upcoming bear market than it did in the prior one.

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Some Useful Advice For You

People who know their numbers do better than those who do not. So, here’s some things I would do if I were you.

First, track all crypto purchases so you know the price you bought it at and the amount invested. Track the amount of capital invested into each coin.

Then, for each investment, track your investment performance. Some coins won’t live up to expectations and you might have negative ROI. Others will be insanely positive and will probably make up for any losses in the other ones.

When you see a coin that has gone up some crazy amount, consider selling some and recouping the investment .

But, I would do all this in a spreadsheet.

I also use CoinTracker to track my portfolio, but I also have a spreadsheet I designed to track these investments.

When a coin does really well, I’ll take profits. For instance, I bought ENJ coin at around $0.55 and rode it all the way up to around $3.70. I then sold part of my holdings and paid off the balance of my car loan with it. I still hold a decent chunk of ENJ coin, too, if it goes up much higher. But, now it is all “house money” and I have a paid-for car.

One last thing…

Don’t forget about your taxes.

When you take profits, you’re going to pay taxes. Don’t try to hide from it. Let the crypto purists fight the IRS and try to hide from the taxes, but in the meantime, I’ll be sitting inside my “Bitcoin Manor” drinking a beer by the pool and not worrying about the IRS.

To that end…

Ways To Pay Zero Tax On Cryptocurrency Gains

Note that this article is focused on US citizens and US persons . The United States IRS has declared that cryptocurrency is an asset or property, but not a currency. Therefore gains on cryptocurrency are treated the same as profits from the sale of a stock, rental real estate, or any other passive investment.

If you want to avoid tax on your cryptocurrency profits, you must plan ahead. Here are 4 ways to stop paying tax on your cryptocurrency gains and your capital gains.

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Why Did I Buy This Coin

If you have bought a coin but dont have the answer to this question, you may have a bigger problem than just not knowing when to take profit.

One of the biggest misconceptions people have about trading cryptocurrency is its the same as stocks. While they do share some general mechanics, crypto is nothing like stocks.

The main difference is stocks represent something much more concrete than crypto. People who invest in stocks often see value in the company and its product or service. This value goes up or down depending on how useful the company remains to its customers.

A cryptos value is based on how many people say its valuable. Youre basically investing in the future of those people.

Most investors who bought bitcoin before its first crash did it for the thrill and got some money out of it. Those who stayed after the crash and even the next were the ones with a plan. They stuck to their guns and got paid.

Before buying a coin you need to know why. Is it because its all the rage? Is it new and got all the hype? Is it super expensive and do you have too much money to care? Does it have a cool name?

Whatever it is, the investment needs to have a reason because that reason will determine its purpose.

Stick To Your Goals Visualize And Stay Motivated

How to Invest with Crypto

Nation, if you get one thing from the video, please remember and do not neglect this part. This idea of turning your dreams into goals, turning those goals into a mental picture and using that to know how much you need and to motivate you is priceless. This right here is going to give you a destination and make sure you reach it!

So if I assume that stock and real estate portfolio will grow at an average 6% a year then the $2 million grows to just over $3.5 million at the end of 10 years. You can use an online calculator to find this or just type in a calculator one plus the annual return youre estimating, so here Im using 1.06, and then this x-to-the-y key which is the exponent, and the number of years. So 1.06 exponent 10 is 1.79 times my starting investment.

That means I need my $400,000 crypto portfolio to grow to about $1.4 million over that ten years. But this isnt as simple as just finding the annual return over that whole decade because Im assuming cryptocurrencies prices will increase quickly and I can sell after a few years and then just collect that 6% interest for the rest of the time.

So if I assume my crypto will reach target prices within three to five years and I can then sell and be able to collect 6% annual interest after that, it really means I only need the crypto portfolio to grow to about $1 million or a 150% return from here.

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What Are Opportunity Zones

Opportunity Zones are geographical areas spread across the US designated by state and federal governments for economic development. OZs were introduced by TCJA 2017 and the goal of this provision was to encourage wealthy individuals to invest their unrealized capital gains in these economically distressed areas in a tax efficient manner. In practice, funds are established to pool money from wealthy individuals. Then, these funds, known as Qualified Opportunity Funds , invest pooled money directly in development projects in OZs.

How To Take Profits In Crypto And Reinvest

In order to be successful in the field of crypto trading, it is necessary to acquire the knowledge of when to enter and leave markets at exactly the appropriate time. Sometimes, traders will be confronted with uncertain market conditions and need to make a hard choice for the sake of their trade, regardless of whether it requires a loss or resigning from the trade prior to making a significant profit. Additionally, fears, greed, and frustration can influence traders decisions and significantly impact their trading decisions. In turn, this can affect long-term profitability.

Each trader typically has his own preferences in regards to the strategy. Some may prefer to pay for all of their orders in one go, and others may think its more beneficial to spread them out at different prices. In the end, each trader has their own degree of risk-taking capacity as well as different goals and different timeframes to use in their method.

How to Take Profits and Reinvest in Cryptocurrency

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The Bitcoin Craze Is Ubiquitous

Last year, the world saw a massive influx of capital into the cryptocurrency markets as they gained popularity in the mainstream media, and theres no telling how 2018 will play out. The total cryptocurrency market cap, which includes the market cap of all the coins surpassed US$700 billion just a few days into January 2018 , and has taken a wild, uncertain tumble. The masses have entered the market, as well. The number of users on Coinbase, a Bitcoin trading exchange, surpassed the number of active brokerage accounts at Charles Schwab late last year .

How To Reduce Taxes On Cryptocurrency Gains Through Tax

allbullish.com review – How to Withdraw and Reinvest bitcoin profits

No one likes to find out they owe money when tax season comes around. Thats why savvy crypto investors are well aware of the tax implications of their trades throughout the yearand they use this to their advantage through a strategy called tax-loss harvesting.

You can use tax-loss harvesting to sell your cryptocurrency assets while in a loss position to offset your capital gains, and therefore reduce taxes on cryptocurrency gains. And, even if you dont have capital gains to offset, tax-loss harvesting could still be beneficial as a capital loss deduction from your income.

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What Do I Want Out Of This Trade

We obviously want money out of any trade, but if thats your answer, then how much is enough?

This is often where people get stuck because they dont know what the coin would do next. They could sell but then the price might keep going up afterwards – they wouldnt know how to deal with that regret.

If youve ever watched Who Wants to be a Millionaire, the contestant was periodically faced with the dilemma of either taking what theyd earned or risked everything on the next question. Taking profit in crypto is a lot similar to that – the price could keep going up or plummet in disregard of historical data.

The key to answering this question is to avoid the raw numbers and focus on the percentage. People have different sweet spots for taking profit in crypto but most traders tend to set their targets at 50%. 100% is usually the dream and anything beyond that is a bonus, but if thats your mark then you should learn to stop there, too. Push aside temptations and do the right thing.

Reinvestment Taxes And Iras

The Internal Revenue Service taxes capital gains on investments, whether you reinvest them or not. You must declare these gains on Schedule D of your Form 1040 and pay tax on the gain. If you’ve held the investment for more than a year, you pay at the higher long-term rate short-term capital gains taxes are for investments held less than a year. If you have the money invested in a tax-deferred savings vehicle such as a traditional IRA, the gains continue to add up until you start making withdrawals. In a Roth IRA, investment gains are tax-free when you start withdrawing.

References

Writer Bio

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor’s degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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