Are your investments private or public?
As our financial systems evolve the data mining or crypto currencies are seeing many new investors. One of issues that arise with these confidential accounts is how to own them for privacy purposes as well as tax considerations.
By default many investors own crypto in their own personal name. Later on they realize a formal business entity such as a Corporation or LLC can offer them benefits. The only problem is that Inc/LLC registrations are public information. It somewhat defeats one goal of anonymity or privacy for your account.
States such as Wyoming have passed various laws to enable crypto activities and protect digital assets. They offer LLCs with limited disclosures. But there’s more to the story.
A public filing as well as a resident agent are required for your LLC. This involves disclosures and maintaining a verified address so you can be served a legal summons. You leave a digital breadcrumb trail.
If you want a formal business structure without government permission or disclosures, then look at using a Business Trust. You get many of the same benefits such as limited liability, an EIN and multiple tax classifications. Best part is no public registration and no requirements for a verified address. It’s unlisted.
One other factor regarding exposure. There are two pending bills from your politicians in Washington DC seeking to compel all private corporation and LLC members to disclose their identity and provide photo ID or risk civil criminal penalties. It is not yet law but a sign of the future. This may or may not be important to you. A Business Trust is exempt.
The best way to keep your anonymity and use a business origination is with a business trust. Forget about minimum disclosure. How about zero. This is because there is no registration. You still get business banking and income tax classifications.
But you can get rid of the secretary of state, resident agents, statement of information and franchise taxes. More important get government out of your business.
These seem to be two magic words that everyone loves to recite. But here’s a question – when do you need limited liability? When you have assets that can physically injure someone. Example such as rental houses or construction equipment. Yes you need limited liability. But what about a crypto account. It’s hard to imagine how your account could hurt someone. Just wanted you to think about this with a clear understanding.
You might be successful and have other people who’d like you to invest for them. This can enter the arena of securities laws. If you are investing other people’s “assets” be careful.
But what your investors might do is to setup their own crypto business trust account and ‘hire’ you to work for them. This could be one way to avoid securities law risk.
If you go offshore and setup a Bahamian or Cayman Islands corporation to hold the crypto account, you need to do the full registration with the government authorities to get a charter. Much easier and more private is a non-registered Business Trust and use a Trustee located in Freeport or Georgetown.
Self-Directed IRA ROTH
Many people use an LLC for a self-directed retirement account to invest in crypto. You can do the same with a Business Trust.
Until 2018 individuals could write off casualty losses on form 4684. But now only corporations have that feature. You can have an LLC, or a Business Trust taxed as a corporation.
Scams such as QuadrigaCX, Bithumb, and Cryptopia or unexpected exchange shutdown can result in losses. Only a ‘corporate’ tax return 1120 can write off these losses.
One Year Example:
- Individual 1040 = $100,000 taxable income (no net)
- Form 8949 Crypto – Gains & Losses (on personal 1040)
- Corporation 1120 = $90,000 casualty loss (against other income)
You get many benefits using a business organization taxed as a corporation for your crypto accounts. A regular corporation has extensive reporting requirements and the LLC much less. But they are both in public databases. If you want the benefits without disclosure and lower costs, then use a Business Trust.