Why Benjamin Franklin was Wrong
Benjamin Franklin was a great scientist, politician and visionary. Not only did he co-sign the American constitution and has become the face of the $100 bill, he also discovered a multitude of phenomenons of electricity, which are incidentally the most important resource for PoW algorithms. Franklin also was rich enough to retire at age 42. A few early crypto investors share his fate in this last matter.
There is one quote attributed to Benjamin Franklin that I’ve always found to be fascinating:
There is nothing certain except death and taxes - Benjamin Franklin
Why do we think that good old Ben Franklin got this wrong? So far, immortality hasn’t really been a thing, so the first part definitely still stands. But what about the second part, what about taxes? And how do crypto investments fare in terms of the inevitability of taxation?
For starters, crypto investments need to be declared just like any other investment and the tax office of your jurisdiction will surely be very interested to know how much money you have made. But whether or not taxes are due for those investments very much depends on a few factors. One very important one is the so-called holding period, which describes the amount of time that you have owned an asset or kept an investment.
Taxes are (un)avoidable
The holding period of your coins matters. Depending on your location, the tax rate of investment gains might even go to zero after a certain time of ownership.
This is why having an overview of one’s investments is very important. We are going to check an exemplary investment case:
Even though the Bitcoin price in is lower on July 1st in 2018 than on the day before, the net value of the crypto portfolio after taxes is almost $ 1,000 higher than that on the day before.
Most crypto investors don’t only hold one Bitcoin, but rather multiple currencies from different dates in varying wallets and exchanges. Keeping track of holding periods can be a complex endeavour but may save significant taxes.
This little optimization of holding periods can increase the overall value of your portfolio.
It is always important to weigh the different risks and options. Waiting two months to save on taxes may save you 25%, but in an especially volatile market, you may lose even more if you don’t sell. With the knowledge and an overview of your portfolio, you can make better decisions overall.
To summarize, we might need to amend Franklin’s statement a little bit:
There is nothing certain except death and the declaration of income.
At least until science has figured out how to avoid death, this works for us.
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