Planning your Bitcoin Withdrawals

[Wary]

There hasn't been a ton of public thought and discussion on the wealth management aspect.  (I made the mistake of trying to offer that when I was still a newbie, and it didn't go so well.)  So, while the focus of this thread has gone in a bit of a different direction that I had originally intended, it's certainly been enlightening and enjoyable to absorb.

Your major mistake is being too nice to the guys that offtopick your threads instead of opening their own ones.

[tvbcof]

There hasn't been a ton of public thought and discussion on the wealth management aspect.  (I made the mistake of trying to offer that when I was still a newbie, and it didn't go so well.)  So, while the focus of this thread has gone in a bit of a different direction that I had originally intended, it's certainly been enlightening and enjoyable to absorb.

Your major mistake is being too nice to the guys that offtopick your threads instead of opening their own ones.

On the contrary, this thread seems to me to have remained relatively on-track.  Now we are drifting off to 'meta' however...

[calian]

Getting back on topic what percentage of your assets are you comfortable having in crypto, particularly bitcoin? And how aggressively would you seek to rebalance if this ratio changed, which in a market this volatile is sure to happen? Also how much role do tax consequences play in your strategy? I'll bet theoretically it's possible to rack up a huge tax bill and come to the end of the year without adequate funds to pay it only buying and selling coins.

[sgbett]

I've found that the percentage I am comfortable holding tends to get stomped on by the percentage that alt coins wants to be

[nanobtc]

If your plan is long-term holding and not trading, how accurate a trail would separate cold/paper wallets for each year be? I know that tax laws do not (yet) directly account for btc, but it seems the blockchain would be an irrefutable record. If you are trying to manage your capital gains and not necessarily what you spent for the coins it superficially seems like a good way.

To tax guy: "I sold coins from this year and that year, here is the record of when I acquired them".

Disclaimer: I am not a tax professional. I am not a tax amateur. I am a computer guy, I don't know.

[Syke]

If your plan is long-term holding and not trading, how accurate a trail would separate cold/paper wallets for each year be? I know that tax laws do not (yet) directly account for btc, but it seems the blockchain would be an irrefutable record. If you are trying to manage your capital gains and not necessarily what you spent for the coins it superficially seems like a good way.

To tax guy: "I sold coins from this year and that year, here is the record of when I acquired them".

Disclaimer: I am not a tax professional. I am not a tax amateur. I am a computer guy, I don't know.

Yes, the public blockchain is excellent evidence for when you acquired them.

[Wary]

OT: this article may be of interest to you: http://blog.asmartbear.com/rich-vs-king-sold-company.html
It's about when to exit. Look at the graph "How the cash in the bank affects your lifestyle".
The major idea of the article is that it's not linear: there are 2 major theshold that do make a difference.
1)When you can own your house
2)When you don't have to work for money (i.e. maintain your current lifestyle indefinetely).

So, to plan withdrawals, you have to figure out
1)How much $ you need for each thresholds
2)Which percentage of BTC you want to keep.

Say, if you need $500K for first threshold and $2M for the second and happy to sell 1/2 of your BTC, you have to sell in two big lumps: when your BTC holdings reach $1M and when they reach $4M.

[Chainsaw]

OT: this article may be of interest to you: http://blog.asmartbear.com/rich-vs-king-sold-company.html
It's about when to exit. Look at the graph "How the cash in the bank affects your lifestyle".
The major idea of the article is that it's not linear: there are 2 major theshold that do make a difference.
1)When you can own your house
2)When you don't have to work for money (i.e. maintain your current lifestyle indefinetely).

So, to plan withdrawals, you have to figure out
1)How much $ you need for each thresholds
2)Which percentage of BTC you want to keep.

Say, if you need $500K for first threshold and $2M for the second and happy to sell 1/2 of your BTC, you have to sell in two big lumps: when your BTC holdings reach $1M and when they reach $4M.

Amazing you would post this today - thanks for the link.

My personal implementation/usage of the spreadsheet, that is precisely what I'm pondering right now.  My two criterion are different...but the concept remains the same.
If I am long-term bullish on Bitcoin, and I'll only take a life-changing action at certain price points, then it makes sense to defer or lump all sales up to that price point.  This further pushing out of the sales might be of benefit from a tax standpoint, and absolutely is of benefit from the number of Bitcoins that remain in your wallet post-sale.

[Chainsaw]

Here's a link back to the start of the thread. I've made an updated version of the Bitcoin Withdrawal Strategy spreadsheet.  It now has an Instructions page. Along with a Withdrawal Plan tab, there is now a Rebuy Plan tab.  Given our current rally, I thought a tool like this might let you play around with different percentages, and find what sort of risk/reward meets your balance, and maybe help you settle in one the size and location of your sell points, and/or rebuy points. 

I know a tool like this isn't really for everyone. It's certainly not for someone intending to hold all their coins long-term. They just need grit ;-)
And other people are perfectly content trading without a plan. To each his own - it's certainly a thrill ride.

But me, I'm a data nerd. There's no sense fighting it...so I build tools like this instead, to see what different options look like.
Going forward, I'm hoping that anyone having success with the tool might share what they learned.  What strategies, percentages, numbers worked best? Considerations you made? Tradeoffs?
If you kicked ideas around and settled on a solution, chances are really good that what you'd share here would benefit someone else that's a few steps behind you, kicking around those same ideas right now.

Anyhow, I hope you find the spreadsheet helpful.  Feedback on the tool is always welcome, just send me a PM.

[Zangelbert Bingledack]

Once again key word EARNED.  Yes it would be a capital gain not wages.  It would be INCOME but not EARNED INCOME.

I think you are really asking "so I don't have to pay taxes?". Yes you have to pay taxes.  You pay taxes on ALL INCOME not just EARNED INCOME.

It appears that you are correct. Capital gains do not fall under earned income.

http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---What-is-Foreign-Earned-Income

That's true but at least you don't get taxed twice, since there is a credit/deduction for taxes paid to another government.

[tvbcof]

Once again key word EARNED.  Yes it would be a capital gain not wages.  It would be INCOME but not EARNED INCOME.

I think you are really asking "so I don't have to pay taxes?". Yes you have to pay taxes.  You pay taxes on ALL INCOME not just EARNED INCOME.

Looks like you are right.  Taxed at a rate of 0% (in the lowest two earned income brackets which I'm sure I can arrange in 2014.)  Man, that's gonna hurt!

It also looks like I'll be paying the Obamacare surcharge if I sell a few hundred large, as well as state and local taxes though.  I think I'll survive the trauma.

[Chainsaw]

For newcomers:

Newest version of the spreadsheet: https://docs.google.com/spreadsheets/d/1JDYALoV4KR_pvX5vuQww99t4hwqqmuHuAI9CZWhFgt0/edit#gid=0
Original version: https://docs.google.com/spreadsheets/d/1jv97ERhahE7pP5xAVIXtHEE89Ew4CHiz7imtwsYw8zg/edit#gid=4

(This tool is a guide, I am neither an accountant nor a lawyer, all decisions are your own, etc.)

I've not played with the formal 'Rebuy Plan' tab since 2014. The additions to the auto-calculated, listed Rebuy targets is as deep as I've gone in preparing for this rally.
If there are problems in the Rebuy Plan tab anyone notices, kindly bring them to my attention and I can work on them.

[Joe200]

Taxes? The spreadsheet doesn't take taxes into account. They make a big difference.

[alyssa85]

You need to take account of the price you bought as well, plus capital gains taxes. Most countries will allow you to take a tax-exempt capital gain up to a certain threshold. So if you sell slowly and are under this threshold with sales each year, there is no tax to pay.

[Chainsaw]

Taxes? The spreadsheet doesn't take taxes into account. They make a big difference.

That is correct, and it is important. That needs to be managed at a level above the tool's usage.

For example, let's say you decide you have 13 BTC that are now in long-term gains.
Fire up a spreadsheet that defines a starting balance of 13 BTC and use accordingly.

...it's just a tool. Providing convenient maths to define, ahead of time exit points. Emotions run highest exactly when people should be buying and selling.

No tool takes the place or responsibility of a human decision - they merely serve as aids in making those decisions.

[rajasumi3]

I willing to sell my bitcoins when the price of bitcoins hits a lot higher maybe when the price of bitcoins would be around 2000$ at the end of october .well with that amount of money i would like to pay for my tuition fees.