So the bull run is back! And your clients are back buying Bitcoin, Solana and goodness knows what else. Here is an all too common lesson from the last bullrun and how we can help our client keep some of their profits and pay less tax.
Back in 2021 when Bitcoin hit its ALL TIME HIGH there were stories of regular people making hundreds of thousands of dollars. But you didn't hear many of the horror stories. Here is an example where an investor can end up with a tax bill and not enough money to pay the ATO (yep, they got REKT).
Your client jumps on the crypto train in October 2020 and buys 1 Bitcoin for $1,500. Buy April 2021, the Bitcoin is now worth $7,500. Your client sees Jim Cramer telling the world that Bitcoin is going to a million dollars and your client sells to lock in their profit. Wonderful, $6,000 profit locked in (and a $2,000 tax bill along with it assuming a 30% tax rate).
It's now September 2021, your client has been doing more research and hears about the next greatest token called Solana. Your client takes the $7,500 and invests in Solana at $200 per token.
It's now May 2022 and you remind your client that their tax return is due imminently. You calculate the gain on the Bitcoin from the 2021 financial year and advise your client they owe the ATO $2,000 on the profit from the Bitcoin sale.
The problem, the Solana your client bought in now only worth $50 per token or $1,875 in total. Not even enough to cover the tax bill. Almost all the capital wiped out. But hey, at least when they sell the Solana, they will have a capital loss to carry forward…
Incorporating crypto into your tax planning process is a MUST DO. In this situation, your client could have kept enough money in Australian Dollars to ensure they could pay the tax and not be forced to sell in a down market.
