This is a post I have been trying to write for a couple of days. However, I can't seem to get the words down in a clear way. What I am trying to ask is if I would need to keep working for the rest of my life to earn fiat so that I can pay the taxes on my crypto earnings?
Clearly, if I buy and hold crypto without earning interest, I would need a job to earn fiat for living expenses. If I sell crypto for fiat, then I would need to sell extra crypto to also cover the taxes. In this case, there is taxation of the capital gains.
If I buy and hold crypto, then deposit to earn interest, I would still need to pay taxes on the passive income. So, I would either need to either earn enough to cover my living costs and taxes, or have a job to pay the taxes. In this case, there is taxation of the interest income and the capital gains.
If I buy and hold crypto, then use it as collateral to borrow against it, then I would need a job to earn fiat to pay back the loan. At the moment, borrowing against your crypto is not taxed. However, loans need to be repaid.
The least desirable option is to have to cash out crypto to cover living expenses if the crypto earnings are less than the cost of living. You end up drawing down your savings until nothing is left. And you have to pay taxes on it, too.
I am thinking that the best way this works is if your crypto deposits are earning much more interest than you spend. This way the earnings can pay for living expenses and taxes. Otherwise, you would need to keep working to be able to afford to cash out your crypto. Or, you'd need to keep working to pay back the loans.
In the end, all of this will rely on calculating what my spending level will be in retirement. There has to be a specific amount of savings that generates at least a necessary amount of income to keep the train rolling indefinitely.
Posted Using LeoFinance Beta