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RE: How to Account for Crypto on your 2019 Taxes - Interview with the Founder of CryptoTrader.Tax
That was a great interview, sure opened up a lot more questions for me though. If you pay taxes on your steam as ordinary income, I wonder what happens when you sell it in 5 years do you get taxed again? It's great that you started this conversation I just hope we can continue it.
Yes. Suppose you gain possession of 20 STEEM each worth 20 cents at the time. The blockchain paid you $4 of taxable earned income. If you sell it five years later, say, at a price of $10 a piece, you get $200 and the price you acquired them at was $4, which makes a capital gain of $196. So you must pay earned income tax on the $4 and five years later capital gains tax on the $196.
Finland considers income earned in virtual currencies on online gaming or "mostly recreational" platforms to be taxable only when they are cashed out into fiat, goods or services or virtual currencies external to the platform. What this means is that users of platforms like Second Life or Roblox can earn virtual currencies internal to the platform without their earnings being taxable until they cash out.
A quote from the guidance:
https://www.vero.fi/en/detailed-guidance/guidance/48411/taxation-of-virtual-currencies/
Interesting to see how the regulations vary in different countries! Thanks for sharing.
Tax officials are lost when asked how Steem income should be taxed but I think it is perfectly reasonable that a social media/gaming/etc. platform such as Steem would be considered the kind of platform to fall under the above definition, which seems to be worded in such a way as to be quite broad. There are lots of players of MMOGS who earn a lot small rewards for actions in the games and if every such action should be accounted for that would be unreasonable, which is why that guidance says virtual income on such platforms is not taxable until cashed out.
One thing he said offline after we were talking is that even though technically it should be reported as taxable income - the IRS likely won't know about it unless it passes through an exchange. It's definitely still a bit of a landmine out there with figuring this stuff out and there of course ways around all of this - but if you wanted to be 100% above board then, yes, I believe you would report it as regular income and then would trigger another taxable event in the future if you sold for a different crypto or exchanged to fiat. Their tax team would be able to clarify that more though if you reached out to them!