Holders of Bitcoin are now facing substantial tax liabilities but can alleviate this by investing in income-generating mining hardware.
The crypto lending platform Arch is introducing TaxShield, which leverages a particular aspect of the U.S. tax legislation — bonus depreciation as laid out in IRS §168(k) — enabling investors to deduct the expenses related to mining equipment from their taxable income.
Here’s how it functions: Users collateralize their Bitcoin to secure an overcollateralized loan from Arch, which they can then use to purchase and maintain mining rigs through Blockware. This enables the investor to deduct the entire expenditure in the first year, potentially eliminating hundreds of thousands in tax liabilities while still receiving monthly BTC mining rewards.
The initiative, developed alongside leading Bitcoin educator Mark Moss and Blockware, primarily targets high-income BTC holders, as shared by Arch co-founders Himanshu Sahay and Dhruv Patel in a discussion with CoinDesk. For instance, a client with $1 million in taxable income could potentially lower their federal tax responsibility by about $400,000, all while retaining BTC investments and generating mining revenue.
This aligns with Arch’s broader strategy to enhance their portfolio of niche products, typically found in traditional finance but designed specifically for affluent digital asset investors.
“Many individuals who have amassed significant wealth through digital assets in the past 12 to 15 years have not had access to the same high-quality financial services typically available in the traditional finance realm,” Sahay remarked to CoinDesk.
The founders indicated that their long-term ambition is for Arch to evolve into a banking-like entity catering to crypto holders: a next-generation wealth management solution encompassing lending, income generation, custody, and tax strategy.
TaxShield follows the recent introduction of “Perpetual Income,” another product developed in collaboration with Mark Moss, which enables Bitcoin holders to receive ongoing, tax-advantaged income without liquidating their assets.
Last year, Arch secured $70 million through debt financing from Galaxy and a $5 million equity funding round led by Morgan Creek Digital and Castle Island Ventures to enhance its platform.
In the coming months, Arch plans to launch trading services and is contemplating the addition of card products, according to the co-founders.
Read more: Bitcoin-Backed Loans Are Going to Get Way Cheaper Around the Globe: Ledn Co-Founder
