Tax in the Crypto World
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.
Suppose a farmer plants some corn. It grows and is eventually harvested and stored in a big barrel. He does not pay tax on it until he sells it for dollars. I would argue the same is true for STEEM.
Until time provides us with a court case or an established law, I do not either fret or speculate. My cost value in STEEM is zero. My potential gains are like the stored corn. They are yet unknown.
This is a good point, until it turns into fiat, it shouldn't matter. But even then, should it...? A farmer would pay taxes upon selling his corn, but if I grew corn in my backyard, too much for me to consume, and gave some to a friend, in exchange for a bit of money to cover for water and whatnot, should I pay taxes on that? This is a real question, I am obviously no expert. I feel like I wouldn't have to. Similarly, I would imagine that the little money I could make here shouldn't be declared. As long as I am not making any relevant profits, that is.
I actually don't know the taxation on capital gains here, but I am not sure cryptos would fall under that category. Buying a few bitcoins and then selling them back for a profit seems much closer to buying collectible cards are something along this line and selling them a few years later. Or is that supposed to be declared as well...?
Wow, I realize I don't know much at all when it comes to taxes... (I actually went to the tax office today, should have asked!)
I've also been pondering this question...
In Australia, the profits from crypto are treated the same as shares as opposed to currency. This means that you are taxed on any capital gains you make at 25%. I see this being a massive issue down the track when early adopters are trying to convert their crypto back to fiat for whatever reason.
There are a couple of service that let you pay bills with crypto, and some which allow for meetings in real life to exchange for cash, but there is no simple solution to cash out into fiat. All exchanges will require you to register your personal details and the electronic funds transfer into your bank account is a digital footprint that the government and tax agency can audit...
Where does 25% come from? I thought CGT was calculated on your marginal tax rate. Thanks.
Hmm sorry, I think I meant to say I think there is a 50% discount and the remainder is calculated at the individuals marginal tax rate...
Ok. That makes more sense. My understanding of CGT is if you hold an asset for >12 months you get the 50% discount on your marginal tax rate. If <12months you pay the full marginal tax rate.
Yeah that's right but I think a lot of people will be upset with their capital gains made in crypto when they try to convert back to AUD in the near future... If you check out these guys at living room of satoshit you can pay your Bpay bills with Crypto avoiding the tax issue... They are currently limiting payments to $1000 AUD per day but I think they are on to something.
That sure is an interesting question. I don't have a clue so i'll just grab some popcorn and wait here :D
There might be an argument for using Steem as a type of Pension Account. I am not a tax expert but I would suspect that in most countries that as you draw down (power down) you would have to pay tax on the money at that stage. (Not investment advice)
My crypto-assets are too small to worry about that. If they would ask to pay taxes on what I've in cryptocurrency… I don't know, but it'd be annoying…
Me too, I think it's something you would need to start considering if you were earning more than 5/10k.
I know I am late in commenting here, but are you saying that you are not filing because you didn't earn 5k? I am asking because I am trying to figure out what to do. I definitely earned WAY less than 5k. Should I be including this in my taxes???
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An interesting exploration into taxation.
This is what I would call a major form of financial disruption.
Great article. Let the inventive work-arounds begin! https://steemit.com/tax/@strapped/crypto-to-cash-and-tax