Don't Lose your Crypto Gains to Taxes: Do this Instead

This blog post would be intended for people living in nations that are impacted by capital gains tax.

One thing that crypto has done over the years is that it has created value for people who were willing enough to ignore the noise. Bitcoin, used to be something people make fun at, but now it is something that governments respect. However, there is one thing that many people who holds crypto may encounter once their portfolio looks good enough.

“How do you cash out without losing a big part of your gains to tax?”

Selling your crypto in many countries means that the government is eagerly waiting for its cut. The capital gains tax is applicable immediately, and depending on the countries you find yourself in, that could be rather painful. Indeed, you might sell to solve one problem, only to see the money smaller when it finally landed in your bank account.

This is where a lot of people go wrong, thinking the only option of cashing out from crypto is to sell. In fact, selling is the most expensive option.

The problem with crypto is that when you sell, you create a tax situation at the same time, and you essentially remove yourself from any upside gains or gains at all from then on. Since you can't get it back, you're simply left on the side watching if the market responds.

This is why rich people rarely sell their assets. They do not sell stocks, properties, or businesses because they need cash. Instead, they borrow against what is already theirs. They hold on to the asset but still have the cash.

Crypto operates in exactly the same manner.

Using the value of your crypto to borrow means that you will not be selling. Since you will not be selling, capital gains will not be involved in the transaction. Additionally, when you borrow against your crypto, you will not be reducing your position, and the government receives no chunk from your profit.

Know that his has absolutely nothing to do with greed and attempting to avoid paying tax. It has to do with using your intelligence for your advantage. What is the point in rushing and giving away the bulk of the the profits you have made after you have put in all the hard work to stay through the uncertainty?

Another key consideration is the aspect of flexibility. With borrowing, there is room to breathe. It allows you to manage your costs, invest in another thing, or require finances for emergencies. You never have to close your crypto position. It belongs to you.

Of course, this is not a step to take randomly. A lot of responsibility comes with borrowing, and this means you only borrow what you can handle, as you are fully aware of the risks involved and that crypto markets are very volatile, to say the least. Discipline, as usual, comes into play here.

Everyone is so focused on how to make money rather than how to keep it.

We hold on to our money, by not exposing it to unnecessary tax loss. It is basic long-term planning vs. short-term decision-making. Selling is so easy, but easy comes with a cost.

It is not just an issue of buying and waiting to see the price go up. It is also to be able to have the knowledge to handle the value in an environment that is intended to allow people to have control of their finances. If you're in a country with a real and aggressive capital gains tax in place, then this is definitely something that you should know about. It may be something that you don’t need at present, but having this information puts you in a better position when that time comes around in the future.

Sometimes the best thing that you can do is not sell at all.

Posted Using INLEO