The government knowing about all your transactions comes with you giving them the opportunity to know that if you plan to not get yourself involved with the government tasking trouble, you need to start up well during your accumulation process by avoiding anything that has to do with KYC before buying your crypto. Once you make the mistake of using centralized exchanges, moving your coin down to your self-custodial wallet can only help you gain full control of it to decide when to spend it, but your authorities will always crack down on you for your tax remittances.
I went from a KYC purchase to self custody in a coldwallet.
I think that there are ways to avoid tax problems. What matters the most for me at this point, is not to sell on KYC exchanges because this is taxable.
At the moment I am in a grey zone. I bought my first crypto (20% of savings) 18 months ago. There were no clear tax rules at that stage. Meanwhile our government made vague rules to categorize investors as either amateurs (no tax), semi pros (33%) or professional traders (50%)
You are considered an amateur (taking profits tax free before 2026) if you:
- have not invested a "large amount" (ideally under 25% of savings)
- don't take "many risks" (not many trades, and not many small cap altcoins)
- use a buy and hold strategy, in which it is not defined how long you should hold the position.
All of this is very vague and open to interpretation of the tax man, who clearly wants the maximum cut he can get. While I think I should be able to legally cash out tax free, I am not going to cash out on the same CEX inside of Europe where the tax man will find me. I have moved my purchased assets into coldstorage, and from here I consider sending them to KuCoin (CEX based in Singapore, and not communicating with foreign tax agencies)
If the tax man finds out, which I don't see happening soon, I still qualify to cash out tax free and I have not committed crimes other than not declaring a foreign bank account.
I'd probably convert the KuCoin balance to stablecoins, and send those back into coldstorage.
A next phase of my plan is to file a police report before 2026, in which I declare that one of my coldstorage devices is either lost or stolen, including the balance on it. The keys are reported as gone with it. This is in order to prevent future tax on assets. For them to be able to tax me, they first have to know what exactly I own.
Also at this point buying a real privacy coin like Monero is not illegal.
Doing that would probably close the door back to CeFi forever, but that is a choice I am willing to make.