I disagree with your assessment. I think that the tax status is pretty clear for the vast majority of users and that, with a simple utility, the calculations aren't all that difficult either (since all it takes is running a fairly simple bot against the blockchain -- and then, if you wish, make a decision as to your sales strategy).
See my comments at https://steemit.com/steemit/@mark-waser/steem-goes-through-the-roof-and-the-taxman-cometh.
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Show me where I can find a bot which can tell me exactly how much I owe for everything I earned from Steemit automated? And how does that help me with every other possible transaction I can make?
Realistically, most people don't have bots running telling them how much they owe in taxes. Also we don't even know for sure how to code the bots because not enough clarification has been presented to know for certain which interpretation the IRS intends to enforce. It is just as much of a burden for the IRS to try to enforce this as it is for us to comply.
For example, suppose I gift you a token worth $100,000. Do you instantly now owe $100,000 in income taxes because someone on the Internet sent a token to your wallet speculatively worth $100,0000 at the time? What if the very next day after the pump and dump the same token is worth $5? Did you just get screwed? How can a bot protect you from situations like that?
As for the Steem blog chain, Steem doesn't contain the values in USD of every transaction. The Steem Dollar values aren't perfectly tracked to USD and only give an illusion. The price of Steem itself is volatile. And when you have possession, do you have possession when it's Steem Power or when it's Steem Dollars? If Steem Power counts too then people can owe more in taxes than their Steem account is worth because for instance suppose you received Steem Power when the price is high like it is now, but then 6 months later the price is crashed?
I disagree that the tax issues are very clear. It's clear if you're a miner in 2014. It isn't as clear if you're on Steem.
In your own post you said:
This is very bad news for people who received Steem in 2016 when prices for Steem were even higher than they are now. Also at the time they only really had control over the Steem represented as Steem Dollars because the rest was locked away. If they powered down they still wouldn't know how much they owe, do they owe based on the amounts their Steem converted at the power down, or do they owe at the amounts their account received the Steem? These could produce different tax implications.
And there is no clarity at all from the IRS about it. The IRS speaks of minting cryptocurrency and mining, but no one on Steem is minting new tokens. They get rewarded by the network and earned, but not mined. If it's treated like mining then Steem will never be useful because Steem itself is volatile and the tax situation would make Steem Power itself harmful. In specific harmful because you wouldn't be able to access it yet it would register on the blockchain, so you cannot cash it out 100%.
I'm currently working on it and will make it publicly available. Since all your transactions are on the blockchain, it can easily tell you what your income and capital gains numbers are (modified by your sales strategy -- e.g. FIFO, LIFO or selected batches).
Yes, after your gift, I would owe income taxes on your gift subject to the gift tax rules on property. If it devalued to $5, I am only screwed if I don't sell it. If I do sell it, I'm fine. The bot doesn't "protect" you -- it simply tells you what the effect of your various (but rather few) options are.
It is NOT going to be a burden for the IRS to enforce this. The calculations are really quite simple. The biggest hassle is going to be linking your Steem account to your social security number -- and for people like us who use our names . . . .
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In theory yes, but we don't know they'll accept FIFO or LILO. I've used similar apps so I know what you're referring to. It's the best we can do right now but still we don't know for sure.
It will be a burden for the IRS to enforce it because there will be millions of people to enforce it on. Not that the information on Steemit is impossible to detect, but more that the IRS should have more important cases to handle.
And this is based on what? I looked up gift taxes and see no evidence the receiver of the gift owes taxes. The sender of the gift is supposed to owe taxes. If what you say is true, couldn't someone screw you over by giving you a taxable event which bankrupts you? Who says there is enough liquidity for you to sell it at $100,000 just because the market that day says it's the price?
The issue here is there is a cap on capital losses but there is no cap on capital gains. So you get some fixed amount you can declare as losses. It is these many trap scenarios which will keep Steem and cryptocurrency from having mainstream adoption as long as taxes remain so complex.
Reference
The gift tax laws are constantly in a state of flux but the following items have always been constant.
The sender does NOT owe taxes because he is giving a gift per se. On the other hand, because it is a transaction/transfer, any previously untaxed appreciation is taxed to the sender at the time of the transaction.
When there is a limit on tax-free gifts, it is not possible to screw someone over. Look at the rules for property. If someone gives you a $20M house (when the tax-free limit is low), you are going to be forced to sell it -- but you're never going to owe more than the normal taxes on the money that you receive when you sell it (and you're certainly not forced to sell it in one day).
And you don't think these rules are too complicated for casual people? I don't understand all this stuff, and probably no one but a tax lawyer will. This will keep cryptocurrency from mainstream adoption.
What you're saying basically is we all need to consult with a CPA to participate in Steemit in a significant way.
I'm not even sure two tax lawyers would agree.
I would agree with you on that!!!
Tax laws, in general, are far, FAR more complicated than they should be.
What I'm trying to do is to make it so that a CPA isn't necessary.
TL;DR @dana-edwards - the 2014 guidance is perfectly clear to me in its intent and how to implement it. You can try arguing that it isn't all you like -- but that won't get you anywhere when you are audited.
My point is there might not be any practical way to avoid being audited. Also the 2014 guidance if it applies to all kinds of virtual currency, would be extremely broad and radical. It would mean gamers in WoW potentially also would owe taxes for trading items which have obtained some dollar value on some market. If it applies to all virtual currency everywhere, then the issue is bigger than Steemit, Bitcoin, Ethereum, etc.
Also you claim LIFO/FIFO are options but how do you know that will be accepted? What if they don't accept that? The main issue, well several, there aren't any built in tools to automate the process of determining what is owed. I know you promise to make a bot, but the bot currently doesn't exist and many people honestly wouldn't use it unless it's built into Steemit itself.
Yes, if the IRS decides to go after WoW players, it would be radical -- and they would win. The laws are pretty clear unfortunately. I don't see there being enough money in it for it to be worth the hassle.
EDIT: Unless the WoW players successfully argue that it isn't a convertible currency because there are no legally recognized, sanctioned and regulated conversion markets . . . .
I know that the various sales options will be accepted because the IRS said that cryptocurrency is to be treated per the standard rules for property.
The IRS could easily build a bot and then charge you back taxes, interest and penalties. Rational people will use what will prevent them from drawing the ire of the IRS.
It's not a debate about what the IRS can do if they take the radical interpretation. The debate is whether it defeats the purpose and function of the IRS to take that interpretation? They won't get more money cracking down than they would if they encouraged legitimate users to pay taxes.
Same with WoW, they can crack down on it but doing that would not seem to be worth it politically or economically. It would hurt the economy and make the IRS look evil. The question is whether the IRS is willing to work with the community or are they intent on cracking down and from the John Doe summons to Coinbase it is looking bad but we don't know for sure.
The value is always calculated at the time of the transaction (when you received the award, when you converted it to/from STEEM/STEEMPOWER/SBD, when you sold it). Grab a historical feed from any of the exchanges and the IRS will be happy.
Yes, trying to keep 100% of your STEEM POWER (if that is all you are receiving) will result in a tax bill. No, people who received STEEM when it was higher won't be screwed as long as they sell it (and can report the sale at a lower price).
In that case can we use the trades on Poloniex? That is information we can access and they put a format for that. The Steem Power situation is very confusing because their guidance doesn't mention anything resembling Steem Power.
In fact I read some of their paper and they mention a specific quote which generates more confusion:
This means what exactly? What is a "real world economy"? Is Steem considered "real world economy" or "virtual world economy" and how do we make a distinction? Does it even matter or should we assume every transaction is "real world"?
Convertible virtual currency is Bitcoin or anything like it, but they also define it as a virtual currency which has a dollar value.
This would go for more than just cryptocurrency but also include anything else used as a currency in any virtual world we can think of as long as it has a dollar value? What impact does this have on gamers, or virtual worlds like Second Life?
This is considered a capital loss, but they would be screwed by income taxes right? Capital losses are capped at some amount. As you can see I'm not a lawyer or an accountant, but neither are the vast majority of Steemians who likely are even more confused about this than I am.
Yes, you certainly can use trades on Poloniex. It is a legally recognized, sanctioned and regulated conversion market.
All three of STEEM, STEEMPOWER and SBD are convertible virtual currencies (because STEEM and SBD are traded on exchanges and STEEMPOWER is convertible to STEEM). One argument that could protect WoW players is that there are no real (i.e. legally registered and sanctioned) conversion markets like the cryptocurrency exchanges. Don't worry about "real world transactions". The mere fact that STEEM etc. is convertible means that any transaction has a real world effect.
If you are given a $20M property and then it is destroyed by fire, you aren't screwed by taxes (that'd be an awesome way to wreck your enemies if it were).
I don't see how Steem Power is a convertible virtual currency, can you send Steem Power to someone else? Is it tradeable? I don't know how that works.
Also from what I read, you cannot declare $20 million in capital loss which is exactly the problem. You can get $20 million in gain but not declare $20 million in losses. Maybe I'm interpreting things wrong, any lawyer want to clarify?
References
Steem Power is convertible to Steem.
You do DECLARE a $20 million capital loss if that is your NET loss during a year because not only can you apply $1500/$3000 per year against income but any excess will carry over to be used next year. You simply can't get a massive amount of money back from the IRS for it.
About Poloniex, I've used their info before to do my taxes. The issue is which tax form is appropriate?
Are each trade supposed to be treated as stocks? Then we need to use that form we would use for stocks which is probably what I'll end up doing for capital gains. As far as Steem goes, Steem doesn't convert into fiat anywhere does it? I don't see how it's different from WoW. You can sell your WoW item for Bitcoin and then send that to Poloniex just like you can do with Steem. You can sell entire WoW accounts or any game account in this way for Bitcoin and shapeshift it.
But before I take further steps, I'll likely contact a CPA.
Each trade is like stocks. Rewards are income.
https://steemit.com/steem/@charlieshrem/steem-token-will-be-added-to-jaxx-wallet-and-other-fiat-integrations
It's different from WoW because, as far as I know, WoW is not traded on regulated exchanges. Steem also (obviously) isn't going to get hit until after the market-cap leaders.
It's counter-intuitive but it would be better if the IRS just starting taxing BitCoin and making the rules clear. I think that the uncertainty is hurting wide cryptocurrency adoption more than taxes will.