Most will be familiar with the famous quote "nothing is certain except death and taxes". While there is no arguing with the certainty of death, the certainty of taxes in the world of digital currencies is far clear in my opinion. There are many unanswered questions I have around the tax implications of both gains on and income from digital currency activities.
Steemit is the perfect case study for a discussion on this topic for three reasons:
Income can be generated on this platform without any initial investment that might be traced to another source.
The value of Steem and Steem Dollars are inflating at a high rate so there are significant investment gain considerations here
The proceeds can easily be converted into Bitcoin or other digital currency that can easily be used to purchase goods and services without any interaction with your bank
I fully intend to explore this topic further in the future but right now I will focus purely on probably the most pertinent question, which is:
What tax, if any, do I need to pay on gains and income from digital currency
The tax structure will obviously vary from country to country. In Ireland, for example, the capital gains tax is 33% and the marginal tax on income can be as high as over 50% depending on your income bracket. I've asked a tax adviser about the treatment of tax on digital currency capital gains and he said it isn't clearly defined at all in Ireland and any gains (in his view) would be taxed in the same way as typical investment gains (33%).
The question I have is whether there will ever be a way of the taxman tracing the income to me if the income and disposal of that income is carried out outside of the regular banking system.
I'm not trying to avoid tax here (just to be clear), I'm just posing the question as I'm interested to hear what people are doing in this regard. I personally feel the income tax I pay is a function of the efficiency of the public sector system in which the tax is paid (which is deplorable in Ireland!). Should the tax treatment be different for the cryptocurrency market? I think it's independence and efficiency should be strongly considered here. There is a lot to discuss on this topic so I will leave you with the following question?
Is the income we earn here really untraceable and if so, should we bother declaring it?
Thank you for reading.