Congress has your cryptocurrency capital gains in their crosshairs, but all you need is education to minimize or eliminate the threat.
Last night I was scrolling through YouTube looking for something to entertain my brain when I thought, “how do wealthy people get away with paying little or no tax, legally?” Why do they get to do it, and I don’t? I knew there were methods, but I didn’t know the particulars. So, I started researching, and man, did I find the coolest way I’ve seen yet.
Anyone can protect their cryptocurrency capital gains by forming a Charitable Remainder Trust, donating your capital gains to that trust, and paying yourself in annuities for the rest of your life. Of course, you do need a substantial amount in your portfolio to make it worthwhile, but once you see how it works, you’re gonna be hooked. Plus, you can even set up a tax-free life insurance policy for your family after you pass.
Everywhere you turn, you’re getting taxed. From income tax, property tax, sales tax, and more, it never ends. There’s even a tax when you die. So, it seems you’re doomed to have your hard-earned money whittled away by taxes until there’s nearly nothing left for your survival or growth. And let’s face it, sometimes all you can do is survive.
Well, it’s time to surpass survival and get to the growth part. Cryptocurrency investment has opened the door to wealth for the every-person. It’s made it possible for you to become rich. However, rich people are rich in part because they know how to minimize or even eliminate taxes. But those methods aren’t gatekept and are available to anyone.
For example, tax lawyers and professionals know how to set up a Charitable Remainder Trust from beginning to end. Therefore, you can take your substantial earnings and protect them from capital gains tax keeping your earned prosperity.
Spoiler alert: I’m not a professional financial advisor or a tax specialist. So, contact one of those to take care of your money.
Let’s get it.
Step 1: Setting up a Charitable Remainder Trust
A Charitable Remainder Trust (CRT) allows you to store money tax-free while paying you an annuity for life with the remainder left over after you die going to a charity of your choice. You’ll get in touch with a professional to set this up for you. And you’ll get it completely set up before you do anything with your crypto gains! Remember, unless you use fiat to buy crypto, you could be subject to a taxable event. So, don’t move that crypto until you’ve completely set up your CRT.
So, here’s how a CRT works. First, it’s a tax-free shelter for your crypto in which you are paid out a sum of money every year for as long as you live. In addition, the IRS gives you a big tax deduction for donating to the trust. Then, you can use the tax deduction for the next five years to shave off the taxes you’ll pay on your annuities — the IRS taxes annuities as income.
By the way, there are many types of CRTs, but for this example, you’re using the vanilla version. Okay, so you’ve got the CRT set up. It’s time to donate.
Step 2: Donate to the trust
In the eyes of the law, because the CRT is irrevocable (by the way, the CRT is irrevocable), it’s legally guaranteed your money will go to the charity you chose. Therefore, the CRT is a charity. Even though it has no physical office or workers, it’s a charity. That means you can donate to it. Donations are tax-free, and the IRS will throw a tax credit on top, so that’s pretty great.
For this example, let’s assume you’ve hit it big and your wallet has $1 million. You can donate that million to the CRT tax-free and get a tax credit of 30–40% over five years with what’s called a carryover. So, let’s think about this. If you had withdrawn your money straight out to the bank, the IRS would have taken 23.8% plus your state tax rate. So, that total rate could end somewhere in the 35–40% range. That’s $350–400K stripped away from your million. However, you’re now getting a $300–400K tax credit instead.
Great, So, you’ve donated to the CRT and got your tax credit. Now what?
Step 3: The CRT will sell the crypto
Since you donated the crypto to the CRT, it can sell the crypto for fiat tax-free. That’s right, completely tax-free. Charities do not pay taxes on the money they make. So, that one million in crypto is now one million in cash. You (or your lawyer) have sold the crypto on the charity’s behalf. Therefore, it wasn’t legally sold by an individual but a charitable institution.
Another bonus is the money inside the CRT is asset-protected. That means if you get sued for any reason, they cannot touch the funds in the CRT. Your lawyer will have the details, but that’s pretty cool, right. Charities receive an enormous amount of benefits, and that’s why rich people use them. It’s all about the tax and protection. I couldn’t even tell you if they care about the cause.
Onward you go.
Step 4: Start receiving your annuity
Your lawyer will have set up the annuity tied to the CRT already. You could see an 8% annuity payment, but it will vary, and once again, you’ll know all of this before you move the crypto into the CRT. But let’s say 8%. That’s $80K per year for the rest of your life.
Now, the IRS will tax that money. However, you’re sitting on a nice little tax deduction 5-year carryover of $350–400K, and you can deduct up to 60% of your salary depending on how much and to who you donated. So, that means you’ll get nearly all of the $80K each year for the next five years.
So, there you are, pursuing things you want to do while getting paid $80K per year. Nice.
Now the question is, who’s mad about your new fortune? The IRS? Well, CRTs have been around for 30–40 years now, so they aren’t that mad, but they might be a little upset. However, it’s all legal, so they’ll get over it.
No, it’s your family who’s mad. You’ve got all this money and then the charity, but what about them? Not to fear, you can take care of them too.
Step 5: Set up an ILIT (Irrevocable Life Insurance Trust)
An ILIT is another step your lawyer already set up in advance. It’s a $1 million life insurance policy you cannot touch, like the CRT. Now, the premiums for a policy like this can be quite high — up to $100 per month. But, you’re not going to worry about that. Remember the tax savings you received from your deduction? Well, you’re going to take that money and frontload the ILIT.
So, let’s say the policy is $100/month or $1200 per year, and it’s a 30-year policy. You’ll frontload it with five big lump payments of $10K per year. That much will cover the premiums for the entire payment period. Beautiful, right.
Now you’re thinking, oh no, they’re going to tax the crap out of the policy money going to my family when I die.
Nope.
It’s tax-free. Your family gets the whole $1 million. Boom, done.
Conclusion
When I found this, I was both surprised and not. But, of course, I knew there were methods by which the rich are rich. I just didn’t know what they were. And now that I’ve learned about CRT, I want to know more, and I hope it’s spiked your interest too.
So, often you face processes that drain the money your labor produced, and I’m not too fond of that. But, I also believe that those who weren’t born into wealth but gained it through work or luck feel the same way. They don’t want someone else taking their money. So, if there’s a way to protect it, why wouldn’t they?
I hope CRT excites you enough to begin your plan to invest and work toward making enough money to set one up, and feel free. Do not worry about food and shelter, and do some things you want before you pass on. That’s the goal.
I know one thing: we gain nothing by doing nothing. But if we try, there’s at least a chance. So, let’s go and make our fortune.
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