IRS Tax Rules for Cryptocurrency in 2018
It is worth noting that no one ever proved that cryptocurrency could fall under a like-kind exchange. Whether that tax treatment was ever permissible in the USA would have depended on an IRS hearing. This hearing never happened.
Due to the new tax legislation, a like-kind exchange for cryptocurrency is 100% certain to not be permissible. The new tax legislation signed into law for 2018 has determined that a like-kind exchange is limited to real estate only. It no longer includes other possible assets.
This article is not tax advice. No warranties are made.
How is Crypto Taxed in the USA?
Cryptocurrency is treated as a capital property for IRS tax purposes. This means that people are supposed to file a Schedule D with their normal 1040 form. In these types of gains, there are specific rules that apply. At a basic level, we calculate our basis for the asset, and then when the asset is exchanged, at that point we would calculate whether we have a taxable gain or loss. What this means is that a cryptocurrency is treated similar to a stock exchange, except you are not going to get a fancy tax report to make it all easy.
In the world of stock brokers, each broker must prepare a 1099 form, showing your calculated gains and losses with the firm. This makes tax preparation super simple when it comes to stocks. With cryptocurreny, this simple tax prep becomes complicated because US exchanges do not prepare 1099 forms, and are probably unable to due to the nature of cryptocurrency being a medium of payment.
Why is cryptocurrency so different?
With a cryptocurrency transaction, very often, they are not exchanged for USD. More usually, they are exchanged into other cryptocurrencies such as Bitcoin or Ethereum. When this exchange occurs, US tax laws would have us recognize the fair market value of each property, and this fair market value exchange would create a taxable gain or loss.
In other words, in the US, when people sell 100 Steem for so much Bitcoin, this is a taxable sale if the sale results in a fair market value appreciation of Steem from the calculated basis. What makes this more difficult is that the person has now entered into a new capital asset calculation because they have purchased Bitcoin.
A simple thing as buying bitcoin to buy steem, holding steem, and then selling steem through bitcoin would result in 4 reportable capital transactions to the IRS, especially if Bitcoin was held for any period of time.
Only the most fastidious accountants are likely to be 100% tax compliant when it comes to cryptocurrency situations.
How is Steem earnings taxed?
Believe it or not, Steem earnings are taxable too in the US. When you earn Steem or SBD, this is business revenue. Personal business revenue is reported on a Schedule C form to file with your 1040. You would calculate this revenue at the fair market value on the date you acquire the funds (when you click the redeem button). This would be business revenue. Since you likely do not immediately sell that Steem Power and SBD, you also create a secondary business investment transaction. The basis for the investment would be whatever you recorded as your business revenue. Then when the Steem / SBD is sold, a gain/loss would be calculated at the fair market value of those properties when they are exchanged for something else.
What did you just say!? Will this nightmare end?
My evaluation of the US empire is that as empires grow older, the laws and customs grow more intricate and complex based upon years of law precedent they rest upon. These ritualistic laws become increasingly meaningless for practical purposes, but empires seldom care. In the end, the inefficiency of an old empire becomes its undoing because laws that serve to the public detriment rather than its protection or advancement pile up through each successive generation, weighing down society. The US government will not always exist, which will be the end of IRS taxation nightmares. Until that era, the IRS will likely exist.
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