WARNING: Do not ruin your life because of taxes like so many in 2018!

See edit at bottom for answers to common questions.

PREFACE

Obviously this is dependent on tax laws in your specific country. This post is primarily about the US and other countries with similar taxation laws.

WHAT HAPPENED

In the 2017 bull run, people saw crazy gains (10x-100x) and then traded without considering the taxable events and liabilities being created.

Then when the 2018 crash happened they did not have money to pay their HUGE tax bill that was owed and ruined their financial life!

HOW IT WORKS

If you bought $10k worth of a coin and it 20x to $200k in 2021, and then you trade it for any other coins, you have a realized gain of $190k.

Assuming a 20% effective tax rate, you would owe $38,000 in taxes!

Now if your portfolio dropped 80% back down to $40k and you did not harvest the tax loss (sell to realize the loss then rebuy) before the end of the year… you would STILL owe $38k in taxes for that year, which is your entire stack!!!

WHAT TO DO

If you had substantial gains this year and traded during the peak earlier this year, the smart thing to do is to:

1. Use a crypto tax reporting software to calculate how much in realized gains and tax liability you may have.

2. Cash out a portion of your stack and set it aside for paying taxes when they’re due OR if you're okay with the risk, you can even convert to a stable coin and hold on a lending platform to still earn some interest. (keep in mind this trade creates another taxable event so you'll want to factor that in)

CONCLUSION

There were many stories of people in 2018 who owed HUGE sums in taxes that were near their entire stack or even more because they didn’t consider taxes and didn’t plan ahead.

Learn from their mistake so you don’t repeat it!

Hopefully we’re in a 2nd leg of the bull run but don’t risk being in this position if we're in a dead cat bounce and/or the market goes bearish.

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EDIT: Want to answer the same questions I keep seeing get asked:

• Yes, in the US, crypto to crypto trades ARE taxable events and are required to be reported. It’s not just if you sell to fiat.
• The info in this post only applies if you trade or sell (USA or countries with similar laws). If you just buy and hold or transfer a coin from wallet to wallet there is NO taxable event.
• I use bitcoin.tax for crypto tax reporting. There are other options if you Google.
• I use Celsius to hold/lend coins and stable coins to earn interest.
• Google “tax loss harvesting” to learn about how to reduce your tax liability and when it would make sense to do so. Wash trading IS allowed for crypto (unlike stocks).