Your argument seems anchored in the fact that SP and/or SBD are difficult to value immediately when awarded. But, as an attorney and CPA, I can tell you that's completley irrelevant. If I discover a buried treasure of one-of-a-kind ancient artifacts in my back yard, I MUST pay taxes on the fair market value of such artifacts even though, being one-of-a-kind, they may be very difficult to value with any degree of certainty. I must make a good faith effort to determine their value on the day I found them (even if that means hiring at great expense expert appraisers to do so), and I must report that determined value. I am not permitted to just claim or assume a zero value simply because valuing them may be difficult or costly.
The same is true for SBD and SP. Those cryptocurrencies are undoubtedly worth SOMETHING on the day they are awarded, and as a general rule we must all make a good faith effort to determine that value and report it. To the extent that determine that value requires some subjectivity, we must nonetheless employ a consistent methodology over time (as you have suggested is important).
I'm interested in reading more about your post, but SBD and SP are almost certainly taxable at some value when they are awarded. The difficult question is how much.
I agree completley that the IRS is a criminal enterprise, and it's precisely becasue of that that undereporting gross income should not be taken lightly.
what if i find a paper clip on the street. I know a guy who traded a paper clip for a house, so I need to claim the value of house for that paper clip.
Also with stocks you dont have to claim them unless you profited from them - they may be worth a million but if you do not cash them then they are just stocks - thats how I been doing it
You absolutely have to pay tax on stocks even if you don't sell. I get stocks as part of a yearly bonus where I work. I have to pay tax on them as soon as I get them even if I don't sell them. In fact, NYC employer takes some out of those stocks automatically for tax.
thats not tru! maybe for you in NYC youve been connd into paying taxes on things you havent ven made money on yet, but if you dont sell you stocks, you dont pauy capital gaisn tax yet! Thats why people never sell during december they wait till january because of the taxes...even my stocks teacher in colege taught us this and he was jewish! sorry that youve been conned into being forced to follow illegal laws that dont make any sense, its a shame
I don't live in NYC...and you are confusing 2 things. Yes, you pay tax when you sell...you don't pay capital gains as the stock gains or loses value. Agree with you on that...but you do pay tax when you are first awarded or gifted the stocks. Your stocks teacher in college is correct...but your stocks teacher didn't cover the scenario of getting a stock award. Most people don't get stocks awarded to them, so it's not a common issue covered.
this is exactly why im not in stocks, ur taxed if u win, ur taxed if u loose... im an anarchocapitalist and dont like for what the greedy IRS is doing. next thing u know, if your dog pees in a firehydrant, since the firehydrant could be federaly owned, its now a taxe everytime ur dog pees on the darn firehydrant...
Taxation in Western countries is used to fund mass immigration and welfare programs breeding native populations out of existence. It's a form of socialist wealth re-distribution. Income tax should be completely abolished as it dis incentivizes hard work. Only consumption should be taxed. That would be a much fairer system.
As for the stock market it's a rigged game. Stay away from it and just trade crypto ;)
Then you've been doing it very, very wrong.
Yes, if you find a paperclip, it's value is technically taxable income to you, though nobody reports paper clips as income because their value is so low and the chance of getting caught is near zero. Neither is true with SP or SBD.
There is no fathomable ethical or moral justification for this. You are just defining oppression's own fallacious argument. I am outlining a moral and philosophical justification for how things should be. Hopefully, by part four or five, I will be able to make that practical.
There is no fathomable ethical or moral justification for taxes, period. But that's rather beside the point.
You are a strange man. You on one hand say.. they are no bueno.. then on the other hand you are enforcing them wholeheartedly by fear-mongering things out of imagination land. Make a stand. Stop the unjust. Don't push your brothers over to trample on their backs.
I assure you, it's not imagination. It's black and white law. Not even a shade of grey. People can decide for themselves whether to obey the law or not, but they shouldn't be deceived into believing the law says one thing when it actually explicitly says the other. If you want to argue that the law should be different than it is, you'll get no objection from me. If you want to argue that the law is unjust and people should not obey it, I likewise won't object. But don't mislead people by misrepresenting the law to them.
You sir, should devote some more time with the mind you have to helping the common man figure a way out of the laws of the elites. You have an astute understanding and possible know the key to unravel or to discard the base of this house of cards.
If being wrong means getting wealthy, then.im wrong.
yes, if loving you is wrong ... then I don't wanna be right.
lol sexual chocolate
By you saying he is very, very wrong. Do you mean to say that if you purchase and hodl something, and it appreciates in value, you are expected to pay taxes on something even though you haven't actually had a taxable event?
OR
Are you saying if he finds money on the street and never reports the income, then he is very,very wrong.
Clarification there would be nice as I can see you saying either statement. Thanks.
As for finding the paperclip. Yes I agree. Any income found is taxable. However, the IRS has to prove it as well.
If you buy something and then it appreciates, you don't pay tax on the appreciated value until you sell/trade it. But you do pay tax if that something is gifted/awarded to you at the time of the award.
Right. I was just trying to get clarification from @sean-king.
One of those statements is wrong while the other is not. I can see him making one of them (the correct one) but the op misunderstanding.
This the asking for clarification.
Not looking to tear anyone down or anything! 🙂
sorry but people dont pay taxes on money people gift to them
if this was teru peopel would be paying taxes on every Borthday and Christmas! Do little kids also have to pay taxes on Cheristmas gifts from Santa?
maybe tahst why anta needs all those elvs to do all the tax paperwork for christmas gifts!
haha sorry but i knwo ur trying to helpo BUT people like u are the ons spreading theentire idea of having to pay taxes, its a social peer pressure situation, we police ourselves
no i mean it! if people refused to obey immoral orders the world would be abetterplace ...if people just stoped paying their taxe sthe IRS would have to just guve up and try raising taxes another way! its true! its up to al of us ! the IRS is NOT some unavoidable computer program like Agent Smith
the IRS is NOt some absolute gold like omniscent omnipresent organization that sees all and know sall, they are a criminal enterprise a mafia and they ue fear and intimidation and violence and they will be stopped and they will be made to heal under Trump and th American people will eventually show the world how we can end the income ytax and generate all revenue on tarrrifs and other sorts of taxes..we coudl also sel federal lands to raise money....we could shrink the federal government and we wouldnt need our icnome tax,
When you are gifted money or even stocks by family or friends (not an employer), then the rule is under about $14k per year you don't have to pay tax or report it. Over $14k you do have to pay tax. You can also have married couples split this up, so your dad could give you $14k and mom give you $14k for $28k total per year with no tax implications.
But, if your mom gives you $20k as a gift on xmas, you have you pay tax on that....or the IRS will come calling. This is not about being moral or immoral...it's about an existing US tax law and do you want to break it or follow it.
https://en.wikipedia.org/wiki/Gift_tax_in_the_United_States
I mean the latter, not the former.
Thanks! I was hoping that.
As someone studying to be a CPA one day, I followed you!
I was hoping to find some good tax-related stuff on his blog, found near-nude pics of his GF instead! Lol. :-)
😂
Just done exactly the same thing whilst hunting for info on.... shit... I've forgotten now! Haha!
By the way... If you actually found money on the street and not report it - yes, it is wrong.
What you said makes sense. If it is not converted into fiat the value is subjective right? What if the gold nugget I find in my backyard is actually fools gold.
@live2love
So what would you do when the time comes that you cash in your stocks? Just curious!
There's no argument a good straw-man can't defeat!
Great post! I've been curious about the impact that trading / investing in crypto currency will have on my already nightmarish tax reporting burden. And I don't even make six figures a year yet (close but not quite).
I'm sure the government will make it as difficult to comply and report as they possibly can. Furthermore I suspect I'll have to refile next year when I inevitably make some trivial mistake and they make me redo it all over $50 or less deviation from what they think I owe them. This has happened year after year. 2016 I got it all right but the previous few years they kicked the return back and ironically all but once they ended up owing me more than I calculated. So they screwed themselves by hassling me which is nice but it sucks having to waste my precious time.
Eventually my goal is to leave this police state (the United States) and find a country that is decent to live in which won't make my tax reporting burden an outrageous and inefficient nightmare. In the meantime i guess all I can do is report it as best I can and hope they don't audit me over some petty BS. like I said, I don't make enough money for it to be economical for them to even scour my return and make me refile as they lose money doing it. But they don't see it that way. If they can spend $500 paying some bureaucrat to pick through my return with a fine toothed comb to maybe gain $50 they will. And they have before. Needless to say I hate our government and the IRS. The founders never meant for the fed govt to be such a monstrosity that literally ruins people's lives on a daily basis. End rant.
I look forward to discussing this at some point with you Sean. You have a lot of good insight into things like this.
What if you happen to loose those buried artifacts right before its time to pay that "fair market price" then whjat? what if we looseour steemit kley or get "hacked" and someone drains our steem and sells it for bitcoin and we never get it back? we certianly wouldnt have to pay any taxes on it then would we???
oh and what about darknet drug dealers? are they paying thir taxes on all the bitcoina nd monero they earn from dealing drugs online?
Maybe the IRS should try and get those drug dealers to pay their taxes too on drugs they sell, right?
see how rediculous this whole argument can be made to apear? Always nbring up the darknet markets and how if they dont pay taxes we dont have to pay taxes
also u cant ever EVER prove that someone ownws a steemit acount! and just necause it has soemones name and information or even photos of them it could all be faked! anyoem could stela an identity or say theire osmoen to conceal their own identity! if someone ius runninga steemit account with ur name and photytos, and hapens to have 1 milion dollars in steempower, do u have to pay taxes on that account? how can they proive its not yopu or it is you? see how much grey area thrte is here? also whose to say the value of steem doesnt collapse and then how much taxes do we pay? also what if we can only sell our steem for HALF its current value because what if we hpen to use a very expoensive exchange and thats just how much we get? i man i now plenty of peopel who jhave to pay 20 percent or 30 percent fees to cash out theor bitcoins, do they factor that in too? se how crazy this becomes?
trump already told IRS to stop their "Coinbase Tax Hunt" bcause "Fishing expeditions" are frowned upon...you cant just go into a private company and go fishing around like the IRS tried to do with coinbaese and because Hillary was Not elected, we are safe! Trump will protect Bitcoin and crypto cuyrrency privacy, just watch! With monero and private walets on steemit soon, theer will be no way for IRS to determine how much money any of us has, if we decide to obfuscate iut! Son youll have steemit mixers and youl be able to geenrate hundreds or thousands of fake accounts and spread the money around tio multipel account and have them all delegfate their steempower back to your main account sio you can still take advntage of the steempower spread out through al ur accounts
ok i know my ideas have many holes sorry i just had to chime in! this is a vry passionaite sibject fior me and many of us bcaue we fel we should have a say in how oru own suppsoedly democratuicaly elected represetativvs make our laws and the IRS is not accountable and it should be, it sucks as we are slaves to this criminal organization and we haveto st and up top it! we CANt kep giving the IRS the benfit of the doubt and submit to them! we ALL HAVE to stand up to these bullies
The debate I'm having is about what the law requires, not whether it's advisable to break the law or not. So, yes, dark net people break the law all the time. Most are never caught. Regardless, if you earn $100 in tips waiting tables tonight and then lose your wallet tomorrow, do you still legally have to pay tax on the tips? Yes, of course you do. So, yes, you would still have to pay taxes even if you later lose the artifacts or your private crypto keys. Tax liability is determined at the time you gained/earned/found the asset. If you later lose the asset, you MIGHT be eligible to offset part of that income by deducting a casualty loss (at least in some circumstances) or you might not. Either way, losing the asset does not make formerly taxable income untaxable.
So whens the last time you ever heard of anyone paying taxes on $100 they found that they later lost?
just sounds like fantasy world to me
hey but disclaimer: U seem like a nice guy, my comments are just direxted at world at larhe not at you, im just real passionate about all this and i think we al are and yeah seems like some people like you just give up and give in to the men with guns at the IRS and live in fear while people like me still want to get people to say no and stop giving in to the criminals, its real y sad but whatever, it is what it is,
but when you talk about people paying taxes on bitcoins even after they loose the oprivate keys, its justr rediculopus
how would you even PAY that money?!?!?! You think if someone hmakes $1 million dollars from a few dollars investing in bitcoins in 2009, but looses the walet key, you think they can just pay the taxe son it even after they loose the key?!?! How would they??! they lost the mopney...
OH I get what you mean, so youre saying that this person should hyptehtically have top be in debt for the rst of his life to pay that money to the IRS, oh i see thats cool
tyeah that all makes sense, thats not total fantasy at all
I agree with you on Steem and SBD, but not on Steem power. That is a very subjective and intangible thing. The IRS is not going to pursue something like that....if they did, they would to pursue instagram accounts and fb accounts with a ton of followers because that is also intangible value.
I agree with you on that and sounds reasonable. Whats not reasonable is getting taxed on money that you really don't have yet until its in your checking or savings accounts as income. I just don't like being taxed on assets. Then again who does? :)
One question is whether SP are in mandatory escrow (i.e. not the escrow agent of the recipient) and thus the SP would not taxable until the minimum (i.e. 6.5 weeks weighted average) time it would require to power them down:
http://www2.econ.iastate.edu/faculty/harl/ald/HarlAgLaw20110218.pdf
However it appears the escrow must actually benefit the payer (i.e. escrow protects against non-performance of the recipient) or be forfeitable in order for the deferral of taxation to apply:
https://steemit.com/steem/@cryptotax/are-steemit-rewards-taxable-in-the-usa-part-2
Certainly any delay added before powering down is certainly not a valid deferral of taxation because the said delay is controlled by the recipient.
I've had my share of run-ins with the IRS over the years, and I agree with you both. The IRS is a crime syndicate run by the federal government. One thing I've taken away from said run-ins though, is that the IRS doesn't give two shits about a guy making 20 bucks a week(or less) making steemit posts, because it'll cost them way more than they'll get out of him in taxes/fees. When you start getting into the hundreds or thousands though (which looks to be a real possibility with someone like Jerry Banfield), that's real money, and they want their cut.
Thank you for contributing from a professional "in the field" perspective to help give us a bit more insight into what the law actually states vs the moral argument against it.
This probably differs from the system utilized in the Netherlands (where I'm from, obviously :)).
See, every revenue you might make from investing in cryptocurrency is seen as capital, for which you pay something like 1% according to the current legislation (I think that cryptocurrency-oriented legislation will take years to be developed let alone implemented, seeing as we still don't have a cabinet 6 months after the election).
So if you'd invest $1000 in bitcoin or whatever and the price soars and your investment is trippled, the taxes you'd have to pay would be roughly $30 as it stands now in my country. Therefore, I think that in the Netherlands the incentive to evade taxes on cryptocurrency is low as the taxes you'd have to pay are minimal compared to the taxes we pay doing our regular jobs (roughly 40%).
That is ridiculously fair. I wish the rates in Canada were that low. I’d be happy to pay 1% to get rid of the headache of trying to figure out these grey areas!
I agree with what you have stated here.
I think Steem Power is, in particular, even more difficult because of the power-down that is required. It is physically impossible to immediately convert to a currency via a fast sale, which is not true even of your hypothetical cache of artifacts. They could be sold at auction or pawn almost the same day.
I hope to explore these complications in the future parts, and consider a possible formula for valuing power downs that takes 13 price snapshots over the next 3.25 months.
Thanks for giving us more qualified advice. I'm only exploring ways to potentially or even philosophically minimize tax liability, it may turn out that none are able to withstand legal scrutiny. In fact, that is perhaps even the most likely outcome.
If @sean-king's assertion that value of rewards should be accounted ''on the day they are awarded'', and my supposition that Steem Power should be treated as capital asset (such as stock) are both true, then would it mean (according to the article below) that it should be first taxed in full as normal income, then again declared as capital gains or losses when powered down, and thus making a profit or a lost compared to when it was first rewarded (or redeemed?)?
Meaning that if I was to make $100 of Steem Power author rewards at $0.10/Steem, I would be right away taxed for $100 of income, but when come the time to Power Down this same SP now worth $1000 (price having evolved to $1/Steem), I would again be taxed on a capital gain of $900? I don't know.
http://time.com/money/3571313/irs-taxes-stock-you-didnt-buy/
I also like your comparisons with online gaming values, because after all Steemit is a lottery. You never know what you're gonna get as a reward. And, first and foremost, it's a game of attention.
I'm an accountant myself, but I live in Canada, and still I'm having a hard time wrapping my head around how the entire Steemit economic system could be viewed by fiscal authorities. It's a brand new concept and can't be considered the same as Bitcoin. This ain't no big faucet, we put in efforts but there is no guarantee of retribution, hence can't be considered as counterpart for services rendered.
You are very prescient to note the lottery factor, as they actually discus how Steemit is a lottery in the white paper. There is no guarantee for work done and no pay agreed upon.
The sad truth is that the first half of your post may be what the IRS expects. I hope to show that that is not an acceptable taxation strategy through this series, but the reality is some people may end up audited and effectively double-taxed, just as you point out.
There is no ethical or moral justification for this and stopping it begins at creating an internally consistent logic for taxation that is far less repressive, given that taxes are a reality we are probably all stuck with for now.
Thanks for your thoughts!
I'm 100% with you about finding a fair tax interpretation for Steemians. Specifically considering that most of us are in for the long run and will keep on sitting on our time investments without really getting significant short-term financial benefits.
One other thing we should also consider: it doesn't make sense for the IRS to pay an employee hundreds or thousands dollars of man hours in order to get their hands on about the same or even less amount that it would cost them. Can you imagine the time an agent could spend going through all of one account's transactions on the blockchain for the duration of an entire year? This leave us with the advantage of developping a justified tax strategy that they could be forced to accept. I'm looking forward to see the one you'll be proposing.
It seems you are right about how the IRS treats the discovery of a treasure:
http://www.foxbusiness.com/features/2014/07/03/found-money-is-awesomebut-must-pay-uncle-sam.html
Steem Power is not a cryptocurrency, @lexiconical mentions something to that effect:
If I understand the SteemWhitePaper correctly, Steem would be inflationary liquidity, Steem Power the company's long-term capital (vesting), and Steem Dollars convertible notes (debt) making interests. It could probably be argued with the fisc that those three should not be treated in the same way. As to whether or not the IRS would interpret Steemit Inc.'s return of value to its members similarly to what the white paper might suggest, I would say is anybody's guess.
in case people are questioning the source. as someone who's passion is taxation, I'll vouch that the OP was correct in treasure valuation.
I'll be following this with a lot of interest!
@sean-king If what you state is true then wouldn't the IRS have a strong incentive to crack down on the Facebook/Reddit accounts which are sold by users who spent time creating them, much the same way Steemians spend time creating their Steemit accounts? I would imagine that the taxes they could gain on them would be an order of magnitude times higher than what they could get from a small bunch of top Steemians like @jerrrybanfield.
If they haven't done so yet, might that not suggest that the IRS cracking down on Steemit payouts is extremely unlikely any time soon?
Perhaps, but do you really want to bet your freedom on the whims of some IRS agent? The penalty for underreporting income is steep, especially when you're talking about tens of thousands of dollars (as many Steemsters are). And there's no statute of limitations for underreporting income.
Furthermore, unlike sales of Facebook or Reddit accounts, the Steem blockchain is a public record and lasts forever. It's as easy for the IRS to to read the chain and see who made what and when as it is for you or me to do so.
The IRS is already cracking down on unreported crypto income. Witness its sweeping subpoena issued to Coinbase.com. Cracking down on Steem would be so much easier for them--no subpoena required.
I admire your desire to be legal, lawful and moral all at the same time :)
I myself have concerns about the well being of the witnesses to steem.
You know I'm not starting like that without a "However"....
On your point about "blockchain is a public record and lasts forever" for records of earnings:
Have you ever used the "Convert to Steem" tool?
Have you noticed it does no make a record of when the transaction was started or How many SDBs were used to buy the steem? ... Did you also know that the conversion is a process subject to the decisions of the witnesses? If all the witnesses agreed one day, they could set the value of SDB to one cent.
@sean-king, that's interesting... seems to me you're supposing SBD and Steem to be "currency" rather than an "asset class" or "property" here.
To that end, I'm pretty sure the IRS treats cryptocurrencies as "property." True, property can be taxable under certain circumstances... but let's remember we are not employees of Steemit; we are also not "independent contractors" which require an agreement that some non-employee service is provided in exchange for remuneration. No such condition exists here... when I make a post, I may or may not end up with a reward-- we have zero contractual agreements. An exception might be something like "steemgigs" where there IS an arrangement to receive "compensation" for a "service;" or when an artist uses "steemshop" to sell a piece work... even that is a bit dodgy, though.
If we really stretch reality a bit, we could argue what we get here are "gifts," but it's not (technically speaking) Steemit giving us gifts... it's a network of thousands of individuals throwing a few cents in our tip jars. Since the IRS exemption for reporting gifts is $14,000 for the giver, not the recipient... that would get pretty nebulous to track.
But we are getting something of value, however. It seems most likely that we are getting an "asset" in which our cost basis (at the rime of receipt) is zero, assuming we are only talking rewards here, not actually buying Steem and powering up. We'll assume these are assets held for gain... not like a painting we're just going to hang on the wall... meaning we do have to keep track.
So that puts us over in a similar asset class to collectibles... all we have is a "thing" in which we have a cost basis, and the next action that triggers a taxable event is the sale of that asset... presumably for a gain. But until we actually sell the asset, all we have is an unrealized gain.
Just like the IRS isn't going to come around to my house and say "we think your stamp collection went up in value by $4000 in 2006, so you owe taxes," or even less likely "your house value went up $10000 this year, so you owe taxes!" I would imagine something similar would apply to cryptocurrencies until the IRS changes their classification to "financial instrument" or "currency."
But when you sell your Steem... then you trigger a taxable event. You now have a capital gain (presuming you've held your Steem for at least a year) or a short term capital gain (less than 12 months-- taxed as ordinary income) on what you sold. Only.
Bottom line... under current rules, it doesn't seem to me any taxable events are triggered till we actually turn our cryptos into fiat.
You must not have read all my prior comments. Please go back and do so. The law is clear, and it doesn't matter whether SBD and SP are considered property or currencies, the tax effects are the same.
As I indicated in prior comments, if (for instance) you find a treasure of one-of-a-kind ancient artifacts (that is, property) in your back yard, you must must pay tax on the fair market value of that property as of the day you found it, and you must make a good faith effort (including hiring appraisers if necessary) to determine that fair market value. The property is taxed at its fair market value in the year you found it even if you never sell the property but instead just hold it. Furthermore, the value of the property is considered ordinary income and taxable at ordinary income rates. The fair market value on the day you found it then becomes your tax basis in the property.
If you do later sell the property, then your taxable gain (or loss) is determined by subtracting the sales proceeds from your tax basis (that is, from the fair market value on the day you found it). And, any gain or loss would then be a capital gain/loss.
Again, then tax treatment of found property is not even a tough question. It's black and white law. You'll find numerous examples here: https://www.google.com/search?q=if+I+find+treasure+is+it+taxable&rlz=1C9BKJA_enUS677US679&oq=if+I+find+treasure+is+it+taxable&aqs=chrome..69i57.4504j0j4&hl=en-US&sourceid=chrome-mobile&ie=UTF-8
So again, it doesn't matter whether SBD/SP is considered a currency or property, the tax treatment is the same.
Is it taxable only because I'm converting to FIAT currency? What if I don't convert ever? I've seen these Visa cards that holds BTC, ETH, STEEM. If I put all the STEEM there, is that taxable (even though I'm not concerting to FIAT)?
It's taxable as ordinary income when you receive the rewards regardless of whether you convert to fiat. It later taxed again (assuming it has gone up in value since it was awarded) as capital gains when you trade it for something else of value. Whether that "something else" is a good, a service, a Visa card or fiat doesn't matter.
Ah, I see. Thanks for the info!
Loving your contributions to this thread, Sean. Excellent stuff.
On this: what about trades in crypto between the time of receiving rewards in Steem and cashing out in fiat, if trading/investing in other tokens?
i.e. take Steem, trade over the course of the year for a few dozen other coins before converting some to withdraw in fiat... would precise records need to be kept for every trade in between, and capital gains/losses calculated and paid on each of those single trades, regardless of that it’s still all kept in crypto?
(To my understanding, the answer is YES - though I’m curious as to whether with your insight, there may be any other possibility, and what specific terminology of the protocol you use in the answer.)