Spend & Replace is easier said than done. If you don’t account for capital gains taxes, you could face significant unexpected costs.
Here in Italy, the tax on capital gains is 33%! As in most countries, gains are computed using the LIFO (Last-In, First-Out) method. This means that when you pay for a product or service with Bitcoin, your "cost basis" is determined by the price of your most recently acquired Bitcoin.
Therefore, a more effective approach is Replace & Spend: buy the Bitcoin you need immediately before making your purchase. By doing this, you ensure the cost basis is nearly identical to the spending price, minimizing the capital gains tax triggered by the transaction.
Is it effective? Yes. Is it convenient? Not really.
Manually timing every purchase is tedious. For me, maintaining a consistent DCA (Dollar Cost Averaging) strategy is a more practical way to achieve tax efficiency.
(image created by @BitPopArt, thanks!)
Here in Italy, the tax on capital gains is 33%! As in most countries, gains are computed using the LIFO (Last-In, First-Out) method. This means that when you pay for a product or service with Bitcoin, your "cost basis" is determined by the price of your most recently acquired Bitcoin.
Therefore, a more effective approach is Replace & Spend: buy the Bitcoin you need immediately before making your purchase. By doing this, you ensure the cost basis is nearly identical to the spending price, minimizing the capital gains tax triggered by the transaction.
Is it effective? Yes. Is it convenient? Not really.
Manually timing every purchase is tedious. For me, maintaining a consistent DCA (Dollar Cost Averaging) strategy is a more practical way to achieve tax efficiency.
(image created by @BitPopArt, thanks!)