Want to learn more about crypto loans and DeFi? Check out our complete guide to DeFi crypto tax.
The Big Issue: Selling your crypto to pay taxes causes more taxes
If you owe money due to capital gains from trading crypto during the previous tax year, selling more crypto may trigger more capital gains, which means more taxes. Here’s an example:
Let’s say the year is 2017.
You purchase 100 ETH for 50 USD.
In the same year, you sell 50 ETH for 100 USD each.
You live in a place with a 50% tax rate.
You owe: 50 ETH sold X 50 USD profit each X .50% tax = 1,250 USD in capital gains taxes.
Now the year is 2018.
You have to pay 1,250 USD in taxes so you sell your remaining 50 ETH.
ETH is now 75 USD.
You sell the other 50 ETH for 1,250 USD in profit (25 USD profit X 50).
Great, so your profit is equal to your bill. But, you need to pay taxes on that 1250 USD. So you need to worry about how to deal with that next year.
If you instead took out a loan from a lending platform such as Nexo, you would have had the funds to pay your taxes, while also keeping your position. Which brings us to our second reason why selling your crypto to pay taxes is not a good idea.
Sell crypto to pay taxes — or keep your long term positions
If you want to keep your long term crypto positions without selling to fiat, the best option may be to borrow fiat against your crypto holdings to pay your tax bill. That way, you won't cut your long term position.
You should be aware though that when you borrow cash from Nexo, you can withdraw up to 50% of the real-time market value of the collateral that you provide in crypto assets (at this point Nexo accepts BTC, ETH, XRP, LTC, BNB, NEXO).
In case the value of your crypto collateral drops significantly, you will be asked to contribute more crypto collateral. If you don’t the automated Nexo Oracle may initiate small automatic loan repayments to rebalance your loan.
On the flip side, if the value of your collateral grows, your loan limit will automatically grow as well allowing you to withdraw even more cash. This way you can continuously save on your taxes.
Where and how can I get a crypto loan?
Nexo is the most advanced fully automated platform for crypto loans, with global coverage. You can withdraw instant Nexo loans starting from $500 going up to $2M in over 45 currencies to your personal/business bank account, or you can withdraw stablecoins to your wallet address.
Nexo puts their client’s security first as it secures clients’ funds in cold storage with BitGo, a blockchain security company that is insured by Lloyd's, backed by Goldman Sachs, and is CCSS Level 3 and SOC 2 compliant. Nexo loans start from 5.9% APR.
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