Sanity check… How I plan to avoid taxes on my crypto profits.


TLDR: Take out loans on my Bitcoin, buy dividend stocks, use the dividends to pay off the loan.

I call my plan the “infinite passive income loop.”

The goal is to legally avoid paying US taxes on my crypto gains, to do that I have to avoid creating “taxable events.” The TLDR of taxable events for crypto in the US (as I understand them) is that an event happens when crypto is converted to fiat or used to buy products and services. Based on my research, taking out a collateralized loan does not create a taxable event.

Currently, the majority of my crypto is invested in projects with staking rewards. I’ve reached the point where I can start pulling some of the excess rewards out and converting them to bitcoin. After converting them to bitcoin I can take out a collateralized loan against the bitcoin for fiat. Two services that offer this, for example, are Coinbase (8% APY) and Celcius (1%-8.5% APY depending on loan-to-value percentage).

The next step is to take the fiat and invest it in dividend-bearing stocks, preferably ones that have a higher return than the loan APY. Dividends from stocks are only taxed if your household income is higher than $80k per year. The majority of my existing stock portfolio is invested in monthly dividend stocks because frequent payouts are addicting. Next, the monthly dividends will pay off the bitcoin loan, freeing up the bitcoin collateral. I should note that my monthly dividend income is already at a point where it can make the loan payments.

Once the loan is paid off, the cycle repeats. Each cycle grows the monthly profits from the dividend stocks and enables the cycle to shorten, and/or the loan to increase in size. At the same time, my pool of bitcoin grows as staking rewards are accumulated and converted.

Am I crazy? Grasping at straws? Are there flaws in my logic?

submitted by /u/ProtagonistX
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