I'm new to the STEEMIT community. So new this is my second post ever. Still, I felt it was important to leap into the fray and hit hard out of the gate. Hence, taxes.
(Disclaimer - I am no accountant and this is not intended as accounting advice - only a public rumination on tax implications and what practices i will be implementing. It should go without saying but if you have actual STEEM income using an accountant would be a good idea)
There have been a couple of posts about STEEM as it relates to taxation. One of those posts is very very thorough and worth a read for sure.
@taxman/how-are-you-calculating-taxes-on-steem-income
However, I think things have changed substantially by this point - so much so that i personally don't agree with one of the major conclusions of the old post.
Also I am only going to address STEEM tax implications here, as opposed to STEEMPOWER for example.
QUESTION 1: HOW DOES THE IRS TREAT STEEM?
The IRS's current rules for cryptocurrency are defined in two posts: IR-2014-36 and the accompanying notice 2014-21
Find them here: www.irs.gov/uac/newsroom/irs-virtual-currency-guidance
To sum up the IRS's position, the way you tax STEEM, and WHEN you tax it, is based on how you acquire it:
If you buy STEEM using another currency, then it is treated as an investment asset. You calculate tax owed by comparing the selling price to the price of the STEEM when you bought it (the "basis")
However, if you mine STEEM, or earn STEEM as compensation (say for your amazing content creation), then the STEEM is taxed as earned income. That means two things:
A) You include it in your income for the year you received it. And; B) You value it for income tax purposes at the basis it had the moment you received it.
QUESTION 2: WHEN DO YOU "ACQUIRE" STEEM?
Luckily the STEEMIT system does not make STEEM earned from posts available immediately or calculations would become difficult. Since you don't have access, use or possession of the STEEM you earn until day seven, it's safe to say that is when you have actually acquired it.
QUESTION 3: WHEN DO YOU VALUE STEEM?
You need to value the STEEM you receive at the moment you acquire it on day 7.
QUESTION 4: WHEN DO YOU PAY TAXES FOR IT?
When you file your taxes for the fiscal year in which the STEEM was earned.
QUESTION 5: WAIT, EVEN IF I DON'T CASH OUT?
Here's the icky part - the law supports the answer "yes."
The popular post i link to above argues this may not be the case, primarily because at the time it was written there was no real market liquidity in which to transact in STEEM, so it couldn't really be treated as earned income. However, things have changed:
In the last 24 hours there has been:
- A volume of over $5,000,000 in STEEM/BTC exhanges on Poloniex.
- Over $1.5 in STEEM/BTC exchanges on Bittrex
- And over $1,000,000 in STEEM/ETH exchanges on Poloniex.
These are substantial figures and make it technically and logistically feasible to cash out STEEM into large amounts of BTC/USD.
As a result, I don't think there is any avoiding the IRS rules for STEEM any longer - according to the letter of the law it seems to clearly count as income immediately upon actual receipt.
QUESTION 6:SO WHAT THE FUCK DO YOU DO NOW?
Make a plan and stick to it. The simplest choice is to keep a ledger. When you make a post and it accrues value, wait until the seventh day and then right down its value at the moment of acquiring it.
Then, at the end of the year, add together your total STEEM values and you have the STEEM income to be taxed. Then you tax that at the unfortunately high rate of a solo business.
QUESTION 7: THAT SUCKS, BUT AT LEAST IT'S SORT OF SIMPLE.
Sorry, not done. You may have to pay more taxes just to cash out your STEEM to help pay taxes on your STEEM.
EXAMPLE (NOT ACCURATE PERCENTAGES)
You make a sick post. It gets 1000 STEEM at 2$ per STEEM. You mark this in your ledger.
At the end of the year you calculate you owe $700 in income tax for that STEEM. So you cash it out in order to pay the taxes.
However, since you earned the STEEM, the price has increased to $4 per STEEM. So when you cash out, you make ANOTHER $2000 in profit! That's awesome!
Except now you have to pay capital gains tax on that new profit as well! And perhaps, because you're new and need your STEEM to pay for your STEEM it will be short term capital gains instead of long term - with the latter being higher.
(BONUS: CONSIDER WHAT HAPPENS IF YOU HAVE 100 EARNING POSTS SPREAD OUT OVER THE YEAR AND AT DIFFERENT BASIS!? = SHIT SHOW)
TLDR: Your STEEM is income the moment the seven day restriction on use passes. You report it that fiscal year at the value you received that SPECIFIC STEEM at. When you sell your STEEM, you may also need to pay capital gains tax to the extent the SPECIFIC STEEM YOUR SELLING has increased in value since you received it.
Edit: at a very minimum, whether this turns out to be the IRS's final interpretation or not, it raises substantial enough questions about tax liability that it behoves larger STEEM holders, at least whales, to at least soeak to a knowledgable CPA on the issue.