Topic: Selling BTC vs Borrowing with BTC collateral in US (Read 288 times)

Borrowing bitcoin is surely dangerous

First of all, I would like to stress I am looking only for legal (in the US) ways to minimize taxes.
No cheating.
Just like in that movie, The Shawshank Redemption, Andy's advice saved a few bucks for Byron.



That is pretty close to what I'm thinking about.
It seems there are no elegant and simple solutions.

Thanks to everyone for contributing to this topic.

If you borrow with bitcoin guarantees it's pretty risky, and you should sell bitcoin even if taxable it does not matter because we directly help the country with taxes.

Borrowing money on bitcoin guarantees I think it's very dangerous, because bitcoin prices are never stable and we can lose when prices rise when we borrow money with bitcoin guarantees.

How do you plan on making this work, exactly? Do you plan on purposefully defaulting on your loan to essentially get earnings without directly selling? That might work in theory, but the collateral must have higher value than the actual loan in practice. You might lose more money in taxes than defaulting your collateral, depending on the amount, but it's really better to simply pay your taxes to avoid any potential legal complications. If you're going to incur fees anyway, you may as well go the (explicitly) legal route.

case 1: have 1 BTC bought at $8k, then sell for $10k.
action: selling BTC to get cash and generate $2k income in the process
tax report: 35% of $2k profit

case 2: have 1 BTC bought at $8k, use for collateral to get cash US$8k (lets say this to make easy example)
action: take US$8k loan to generate income of $2k but have to pay interest $1,500 (just for example)
tax report: 35% of $2k profit (not on net profit $500)
you are still paying tax on the same $2k profit even if you have to pay interest

are you thinking to deduct the loan interest from $2k profit, so that you paying tax only on $500
I think you can't do that if you are doing it personally unless you are reporting tax as a business

The way I read it, the OP isn't trying to avoid paying taxes. He is trying to minimize tax liability. There is a big difference. Most of the tax law profession is based around advising clients on how to set up businesses and entities to legally minimize their tax liability. It's not about tax evasion.


I think many people would take exception with that statement. In the US, the short term capital gains tax rate goes as high as 40%. I think some other countries tax even higher. When tax rates approach half your entire income, it makes a massive difference to your savings and the lifestyle you can afford.

Personal matters or whatsoever on what would be the reason then its their own business where there really people who do mind up on evading or not paying tax which as being said it is not actually big as we know and we do still have the capability on paying it up without having any doubts or worry into yourself that you might get imprison because of such violation. For op, just do the method or way which you can able to secure yourself to be safe.Dont go in the wrong path 

You are right I think paying tax is a small amount of us and affordable to pay, why are trying to make underground by the government just to avoid paying taxes you nearly in risk when you do that you may put in jail once you are caught that not paying taxes.
It's a simple protocol that you obey the law given by the government, just like cheating when you are not paying your obligation to the country besides you are contributing a little amount into your economic state.

Why are people always ready to find some ways in order to avoid paying these taxes? They are not so high so to take such risks.

You mentioned that you're in the US. Selling the BTC back to USD is a taxable capital gains event. Continuing to hold the BTC (in the case of lending) is not. However, the receipt of interest payments is taxable, generally at your ordinary tax rate.


You're comparing apples and oranges; they're both percentages but that's about all they have in common. You just made $2,000 profit but didn't realize it. If you continue holding BTC (and lending it out) and it drops below $8,000 you will incur losses. In that case, if your intention was to preserve USD capital, selling and paying the 35% would be much better.

A better way to think about this: If you're going to hold BTC regardless of price movements, are the (taxable) interest payments worth the counterparty risk of lending out the BTC? Presumably the interest receipts would be in BTC since that's the collateral -- so the goal is to gain more BTC. The temporary USD capital gains/losses are a totally separate issue because you can't hedge or realize the USD value while you're locked into a loan contract.

Also, that 35% is the rate on the net of all your trades in the year. You can keep reinvesting the profits from each trade into the next, so you don't need to think of it as a 35% tax on every single trade. So you should make an additional consideration: If you realize $2,000 profit now, you will have 25% more investment capital than you had before. You can keep compounding on that if you trade successfully -- which can earn much more money than interest payments on your principal.

Yep, better to follow the rules than to regret later. You cannot escape the tax easily especially in US. Borrowing money is not consider as your income but the money that you will be used to pay for that comes from your income for sure. Sell your btc only if you badly needed the money and pay taxes for you to be a good citizen of your homeland.

I would like to put some additional details.

Let's say I bought 1 BTC at $8k, and I am selling it for $10k.
My profit is $2k.
I have the option to declare $2k profit and pay taxes, or use it as collateral for a loan.

So let's say I have to pay 35% taxes for the $2k profit.
If I can take a 1-year loan for 19% APR, it would be better to take a loan, correct?

jaocoincrypto18
I am not sure you are right.
My profits and lender's profits may be different, I see no reason to pay my taxes to the lender as you describe.

audaciousbeing
I agree with that. I suppose, it's profitable to take a loan for 1-year to pay it back only if the BTC price goes up.

Borrowing will be better but if you will make your Bitcoin as collateral then i think the lender will ask you for the advance Bitcoin income tax payment that will be added in your Bitcoin collateral. This will be fair and square just in case you fail to return the cash in any particular reasons of yours on why you did not able to pay them. This is good as Bitcoin will be subject to tax only during conversion to fiat.  

Based on the scenario you have painted, you also need to consider some other factors aside from what is being obvious to everybody who might want to pick borrowing over selling just by thinking tax is not going to be paid but some other things that are important are

1. What is the interest rate being charged and the duration of the loan. If the interest rate is more than the tax to be paid, then its not wise to go for it and again the duration, if its going to be too short to cause a distorted cashflow, then I wouldn't suggest going for the loan.
.
2. What is your plan for your bitcoin is another important factor. If you so much love holding for a very long teem, then the loan is the best option because the appreciation that would accrue over it would cover for whatever interest you will have to pay but if your reason for using it as collateral is because price is low now and you would sell the moment price increases and there is no certainty that it will happen anytime soon and you might ended up losing on two ends. One the interest and secondly the low price might have to eventually sell.

Thanks a lot!

Make sure that you get the nitty-gritties right. The bitcoins should still be in your name (if at all there is an ownership trail). The loan should be at arm's length and should bear interest. There should be commercial substance behind the transaction you structure.

I disagree with you.
Huge corporations try their best to avoid paying excessive taxes:
https://www.investopedia.com/financial-edge/0512/how-large-corporations-get-around-paying-less-in-taxes.aspx

Why we can't do the same.

Borrowing cash against bitcoin, is a legal way to avoid taxes, as far as I see.

Hey weirdo why did you copy my message letter-by-letter? Is it a spam attempt?

Why people do always love to evade tax? Or do things which would able to minimize or cant able to pay up tax.
Even I, would just pay up and obeying governments laws rather than on minding on how not to pay or evade. Anytime soon you will really able to feel the metal barriers of jail.