How to make Steem (crypto) tax efficient and why we should stop spending crypto like it's currency
Should we stop treating crypto tokens as money and use it as collateral (property) instead?
Currently spending Bitcoin (or any crypto token) is not tax efficient. When you spend in this manner you have the risk of acquiring capital gains debt. Capital gains short term can be prohibitively high and so it would be a disaster to have to spend based on that. At the same time who really wants to spend their crypto which functions like a stock, goes up in value, etc?
What if instead of directly spending crypto we simply use crypto as collateral? Suppose Steem and the entire ecosystem had enough relationships with banks to produce a Steem debit card. Imagine with this card all your crypto is safe on the Steem blockchain and is used as collateral to produce loaned USD. This loaned USD would be what we can spend to pay our bills, to buy stuff, without having to worry about any capital gains whatsoever. We could in essence also receive dividends from holding certain tokens and pay the dividend tax rate.
SMTs treated as digital real estate
If we look around we can see SALT Lending trying a similar model. The problem with SALT Lending is that while in theory you can get cash loans and while this can be useful, it could also be (and probably will be) abused by financial institutions. What is there to prevent predatory lending or lending at ridiculous interest rates? If the lending were 1:1 with no interest rate then it would be risk free lending or if the interest rates were somehow pushed to the minimum by the market then again it could work.
SALT Lending has this quote:
Maintain your position and avoid less-than-optimal tax events.
More on SALT Lending:
All of us should want to avoid less than optimal tax events. The question is can the SALT model by improved upon? In my opinion it needs to be improved upon. I also think it needs competition from the Steem ecosystem. Can the SALT model be made peer to peer so that lenders and borrowers can be decentralized? Can Steem itself facilitate this process? Assuming the laws regarding crypto capital gains stay as they are or get worse then it will require creativity both legally and using blockchain tech in order to minimize the risks of using cryptocurrency. If we can do this then Steem in particularly can reach the mainstream adoption phase and SMTs could also become a mainstream thing but as long as crypto to crypto trading is made risky due to tax liability it is likely going to require something like this to make SMTs desirable.
Salt's model was already there on bitshares, decentralised!, one day we might understand the full power of this blockchain, i don't dare to predict how long it will take us to understand the full power of Dan's latest baby EOS :-)
If we use a peer to peer decentralised, anonymous payment, who is going to tax us? :-)
I guess i am still in a funny mood after a whole day of jokes :-)
No SALT isn't like Bitshares. The main reason being that Bitshares only used cryptocurrencies so you still had no integration with banks to actually spend without tax liability. Loaned USD is real money so you don't have capital gains tax liability on that.
You use bitshares?
My country has no taxes on cryptos atm, and i actually think it never will since germany (my country always follows what germany says) has said that they were not going to tax cryptos and that the taxes when someone bought a product were enough, but i don't trust what "governments" say... but this does seem like a good option!
I've heard people talk about a steem debit card since i started on steemit, but i haven't seen anyone actually push this, maybe when the SMT get released they will focus on debit cards for the future...
BTW, i have never asked you this, what is your opinion on people leaving their jobs to go full time on steemit? I don't know if you do this, but what is your opinion? risky bet but it is something that the steemit blockchain needs to secure its future?
I'm "full time" on Steemit myself. I think a good goal is financial independence.
Figure out your cost of living, and then do what you need to do to find income streams to meet that. Jobs are just income streams where you trade time for money.
I did not know you were full time on steemit! It's not like i'm thinking about doing that myself, even though i enjoy this very much i also want to finish my veterinary degree, after i finish it i'll see what i will do :)
Trading time for money... you are absolutely right, it's like that old saying says: "Time is money"!!! Financial independence is something that i'm trying to get, it will take many years, i started only 4 months ago... i don't want to be 60 years and still work a 9-5 job without any time for myself, i would probably end up depressed...
PS: I'm 23 right now, i should have started at 18, but better late then never right!?
Some of us believe the reason to work a 9-5 is to achieve a goal, whether it be financial freedom or something else. The problem is a 9-5 will not by itself make a person financially free or even financially independent in most cases.
Investing wisely, being wise with money, are the key operations.
So true!! And we have another problem, we weren't taught in schools any economy/investing bases, we were actually taught how to spend the money and run into debt instead!
All i learned about investing i learned from google! And i still have much too learn! Atm i only have cryptos tbh, they are the easiest to get since i don't need to pay any taxed for them, if my country ever changes the law i will probably start investing in a SP500 index fund, probably one from vanguard! I will have to invest by myself since banks take a large cut out of the investment for themselves...
As always it was a pleasure to speak to you :) BTW, don't know if you realized but you gave me a nice upvote on one of my posts through steemfollowers, thanks for that! :D
This would be a great idea, but I'm not holding my breath, if only because it makes too much sense. Financial institutions aren't noted recently for their staid and logical decision making.
But yes, a SALT-like formula would make a great deal of sense, and could likely be improved upon, though I'm not coming up with what that might look like at the moment.