Bitcoin Tax Strategies for a Runaway Fiscal Train

Bitcoin Magazine

Bitcoin Tax Strategies for a Runaway Fiscal Train

Lyn Alden, author of Broken Money, has made a strong case for fiscal dominance—the idea that government spending dictates monetary policy rather than the other way around. Her now-famous meme, Nothing stops this train, encapsulates the relentless trajectory of government debt and intervention. But what if something—however unlikely—could slow the train down?

Enter austerity. Not that it’s necessarily achievable in any meaningful sense, but for the first time in years, it’s being hinted at. Markets are adjusting, not because they believe it will happen, but because they’re starting to wonder if policymakers are actually serious. With the shakeup brought by Trump, Musk, and recent USAID revelations, the conversation has shifted. For the first time in a long time, there’s uncertainty around whether fiscal dominance can continue unchecked.

When a country is drowning in debt, policymakers have four main levers they can pull:

1. Inflation: Quietly eroding debt (and savings) by making every dollar worth less.
2. Economic Growth: Expanding the tax base and hoping for a productivity boom.
3. Debt Restructuring or Default: A mix of extending, renegotiating, or outright not paying back creditors.
4. Austerity: Cutting spending and increasing taxes—whether people like it or not.

For years, the austerity lever was a joke. Now? It’s at least part of the discussion – and likely part of a blended approach. And if the season of fiscal dominance continues, tax policy will be the first place where real, actionable changes show up.

For bitcoin holders, this isn’t just another macro shift to passively observe. Unlike inflation or debt restructuring—forces that are largely out of individual control—a tax policy change is one area where proactive planning can actually make a difference in your financial life. The right strategies could turn coming changes into opportunities rather than financial landmines.

Five Possible Taxation Scenarios for 2025

With fiscal dominance running the show, tax policy is in flux. The next 6-12 months will likely land in one of these five tax regimes—each with distinct implications for bitcoin holders.

1. TCJA Sunset (5% Probability)

The Tax Cuts and Jobs Act (TCJA) sunsets, and Congress does… nothing. Income taxes jump, estate tax exemptions shrink, and capital gains get more expensive. The bureaucratic equivalent of ghosting your tax bill.

2. TCJA Extension (10% Probability)

Congress extends the existing tax cuts without any new bells or whistles. A true “kick the can” move, leaving the current framework in place for a few more years.

3. TCJA Extension with Adjustments (70% Probability)

This is the base case: TCJA remains, but with modifications. Trump has hinted at eliminating taxes on tips, removing taxes on Social Security benefits, exempting overtime pay, and allowing deductions for auto loan interest on American-made cars. Additional incentives for domestic production, such as reducing the corporate tax rate and reinstating 100% bonus depreciation, could also be on the table. The possibility of reducing capital gains taxes or extending estate tax exemptions may further shape tax planning opportunities. And the grand-daddy of them all…

4. Bitcoin Capital Gains Exemption (10% Probability)

A true curveball: bitcoin gets a special status, exempting it from capital gains tax, much like gold once was. This would open up huge tax planning opportunities, from gain harvesting to retirement account repositioning.

5. The Death of the IRS (5% Probability)

We never thought we’d say it, but talk of replacing the IRS with an “External Revenue Service” has surfaced. What would that mean for enforcement? Audits? Loopholes? It’s uncharted territory, but worth watching.

Three Wild Cards That Could Shake Everything Up

Beyond these five scenarios, three unpredictable forces could upend everything—and each has significant tax implications for bitcoin holders.

1. A Liquidity Crisis and Emergency Tax Legislation

Imagine a sudden financial crisis. The government panics, money printers go brrrr, and emergency stimulus checks start flying. If the Federal Reserve intervenes aggressively, scarce assets like bitcoin could surge—making timing and tax planning for gains more important than ever.

2. A Strategic Bitcoin Reserve

What was once speculation has now become policy. A U.S. strategic bitcoin reserve has been quietly established via executive order—but so far, only as a holding, not an active accumulation strategy. The implications? The federal government now officially possesses bitcoin, a major shift in its stance toward the asset.

The key question: Will the U.S. transition from passive holder to active buyer? If so, this would mark the first time a major nation-state has become a consistent, strategic participant in bitcoin markets. A steady sovereign buyer would be a structural shift, potentially dampening bitcoin’s volatility and reinforcing its role as a macroeconomic hedge.

Would this accumulation continue even under a season of Federal Reserve balance sheet expansion? If so, it would amount to a form of money printing to acquire bitcoin—an undeniably accelerationist move. Whether accumulation begins or not, the mere presence of bitcoin on the government balance sheet alters its future tax and regulatory treatment, a factor investors must consider in long-term planning.

3. Tariff Shockwaves and Commodity Inflation

The COVID era saw multiple supply chain pricing anomalies—lumber shortages, semiconductor droughts, and food price spikes. Now imagine those disruptions revisiting in sporadic and sustained waves.

As tariffs rise and geopolitical tensions escalate, supply chains remain fragile. Shortages in key commodities could trigger rolling inflationary shocks, sending ripple effects across global markets. Bitcoin, as a scarce asset, would likely react, but with it comes new tax implications. Investors should be prepared for capital gains events resulting from price volatility, as well as potential shifts in regulatory treatment if bitcoin is increasingly viewed as a strategic reserve asset.

What Should Bitcoin Holders Do Now?

Regardless of which tax regime or wildcard plays out, here’s what you can control:

• Roth Conversions – Locking in today’s lower rates before potential hikes.
• Capital Gains/Loss Harvesting – Using market dips and tax brackets to your advantage.
• Estate Planning – Adjusting before and/or after any exemption changes hit using appropriate structures and transfers
• Income Structuring – Keeping taxable events as efficient as possible.

Expanding Tax Strategies for Bitcoin Holders

1. Roth Conversions: Securing Tax-Free Growth

A Roth conversion lets you shift assets from a traditional IRA to a Roth IRA, paying taxes now to enjoy tax-free growth later. If you expect bitcoin to skyrocket, this move locks in today’s (lower) tax rate. Convert strategically during market dips to minimize your tax bill.

2. Capital Gains Harvesting: Locking in Lower Rates

If you’re sitting on large unrealized gains, don’t wait for tax rates to rise. Selling during a year with lower taxable income could mean paying less (in some cases 0%) on long-term capital gains. Combine this with Roth conversions or other income-lowering tactics for maximum efficiency.

3. Estate Tax Planning: The Future of Bitcoin Inheritance

If estate tax exemptions shrink, handing bitcoin down could become a lot more expensive. Structuring holdings in trusts or family partnerships can help mitigate that hit. Gifting bitcoin gradually—using the annual exclusion amount—can also reduce tax exposure.

4. Income Structuring: Optimizing Your Tax Mix

To achieve the best possible tax efficiency, blending different account types—traditional IRAs, Roth IRAs, and non-retirement accounts—is key. A well-structured mix allows for tax diversification, ensuring you can strategically withdraw funds at lower tax rates in retirement. By balancing taxable, tax-deferred, and tax-free income sources, you can optimize your overall tax burden, smoothing out spikes in tax rates over time. For bitcoin holders, strategically selling from different account types based on tax brackets can make a significant impact on long-term wealth preservation.

The Next Step: Focus on What You Can Control

Rather than worrying about the powers that be and the levers they pull, focus on the ones you can control. Even if the fiscal train is out of control, you can do your best to keep your family’s wheels on the tracks. While policymakers decide which levers to pull, your tax strategy remains one of the few things you can actually control. The window to act will likely be October-December 2025—when legislation gets finalized and before new rates take effect.

Stay ahead of the storm. Book an introduction with our team of Advisors and CPAs to craft a plan that makes the most of what’s coming.

This is a guest post by Jessy Gilger, senior advisor at Sound Advisory. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This post Bitcoin Tax Strategies for a Runaway Fiscal Train first appeared on Bitcoin Magazine and is written by Jessy Gilger.