I don't see any risk. When you take 4% out and put it into your bank account it becomes "income" and you pay the same income tax you would otherwise pay. I don't see why the IRS would care where it came from. So assume you have an account worth 1 million, and you take out $40,000? You would pay whatever taxes on that income just as you would if you received a dividend or anything else worth $40,000.
Can you tell me what misunderstanding there can be?
It's possible of course that they change this rule in the future - even now it's just an advisory notice,I think. But without any other stuff to guide me I consider that IRS policy - and it has some serious implications for STEEM the moment it can be claimed in your account.
That notice is from 2014 and speaks nothing of Steemit in particular. Does it even apply to Steemit? If it applies to Steemit why wouldn't it apply to World of Warcraft, Diablo 2, and every online activity?
As far as I know, that seems to apply to miners in particular. Miners are creating money or something intended to be money. Steemit bloggers are earning virtual tokens which can be traded for some unknown amount of money which fluctuates wildly. You can't use Steem Dollars to buy coffee or for anything really so it's not like Bitcoin but seems more like Linden Dollars or WoW gold which is used on this platform but isn't like real money.
Of course I could be wrong, but unless the IRS clarifies and states that this notice applies to all digital currencies, and all platforms, including games, then I don't see that it clearly applies to Steem even if some people might want it to.
So it looks like you would have to declare using a 1099 for Steemit income and that much is clear. What isn't clear is the theory that you have to declare before it touches your bank account and becomes real money. There is no evidence or at least not consistent evidence that the IRS enforces that or that it is the intended policy. If it is then the implications would go far beyond Bitcoin mining and would touch all activities which involve any kind of game item, token, etc, and so if someone gives you a sword worth money in World of Warcraft, do you now have to immediately declare it on your income tax even if you never sell the sword for real money?
It sounds a bit ridiculous if that is the case because how would people play the game of World of Warcraft if their activities in the game are all taxable? It would make all online gaming taxed by the IRS to the point where every player would owe some sort of tax.
To me it's a radical view, and theoretical because the IRS hasn't released any additional notice since 2014. This leaves everyone in the dark or in the confused position where no one can say for sure what the IRS intends to do except for the IRS itself and what happens if you believe every virtual activity is taxed so you pay too much in tax? Do you get the money back if you over paid?
Read my post - the most recent IRS notice counts bought, pre existing crypto currency as investment subject to capital gains. But they count newly mined crypto currency as an immediate income at the value at which it was mined
https://steemit.com/steem/@dber/let-s-talk-about-taxes-2017613t316666z
Right but Steemit isn't minting new cryptocurrency. Bitcoin is minting cryptocurrency. Steem Dollars might be created but those Steem Dollars aren't being minted by the player/participant/bloggers. The bloggers earn the Steem Dollars so it's earned income not minted or mined.
Tell me where I'm wrong? If you blogged on your own website and someone donated Bitcoin to you, how would you pay tax on this? Suppose the Bitcoin was received at $2500 but by the time you got it to your bank account it was $500? Are you saying you owe taxes on imaginary money? Is that the intended policy of the IRS?
Couldn't this be exploited? Someone could deliberately send you a token which seems to be worth $1 million dollars and then minutes a day later it's worth $0 and you owe taxes anyway? What if it's a baseball card which is worth a lot when you received it, but worthless a few days later?
Again, based on a plain reading of the notics i sent you, i would understand the bitcoin to be compensation for my nlogging and the IRS to tax that bitcoin at the current value the moment i receive it.
Now, if it loses value after i get it perhaps i can, bizarrely, also deduct those loses as it is simultaneously being treated as currency and investment property.
But really, who knows?! no one. Im just saying at least have a back up plan in case the IRS DECIDEDS TO GET AS GREEDY AS IT APPEARS THEY MAY TRY TO GET
So if you receive it, you can claim capital loss? But only to some arbitrary limit. So what happens if your losses far surpass what you owe, but you cannot claim that?
The IRS hasn't shown that they are going to pick on cryptocurrency to that extent but of course they could. The IRS also could decide to investigate all who are of a certain political view such as libertarians and anarchists. This however sort of defeats the purpose and makes the IRS into a sort of activist outlet, as the purpose is to collect the maximum amount of taxes rather than to bankrupt the tax payers correct?
So by simply accepting the income taxes from 1099 they can get tax payments for 30 years or however long indefinitely. Why would they reject that in favor of bankrupting Steemit millionaires? I don't see how it would get them more money and in fact probably will just encourage people to try to avoid paying any taxes.
It is - to put it frankly -a shitshow. Nothing is certain and that's the concern. Yes, there would be a profit motive on the IRSs part i think to maintain value in these currencies and therefore not take on the most onorous interpretations of income here.
But at the same time the IRS has been for a long time an agent of societal norms and taxation as a form of behavioral penalty is always a real possibility.
But how this plays out is unknowable I'm just glad to have engaged with you on the topic and am trying to encourage people to at least consider and prepare for all eventualities. just because the worst case outcome does not seem sensible does not mean it should not be prepared for.
You have a point, and if my account on Steemit becomes worth beyond a certain threshold then I too will hire a CPA. Right now I don't have an account worth $1 million but I do think it is possible by the end of the year it's possible.
Even with a CPA, some transactions I don't know how to capture or how to classify, but if I think I will be a millionaire in the future it would make sense to follow a path of least resistance in order to keep whatever I do earn on Steemit.
From what I heard even from various CPAs there is mixed opinions and strategies. Some suggesting immediate cash out into fiat as a means of risk reduction. Others seem to think if it doesn't touch a bank account it's not taxed. I'm not sure which faction is right.
The good news is as long as people engage in the process in good faoth and act consistently then the situation is unlikely to spiral into criminal waters.
Its one thing to be genuinely confused with the tax code and either over or under shoot your liability in a given year - especially on the forefront of a financial issue like this. It's another to actively scorn the notion of taxation, period, and try to hide the ball entirely.