Crypto Tax Season AMA - Edition #1
Do you have a basic U.S. crypcurrency taxation question, ask me anything!
"AMA"
In the weeks leading up the April 15th tax deadline, it can be stressful enough accumulating all of the various forms in the mail (W-1, 1099,1098, mortgage docs and more). For cryptocurrency investors, what can be even more frustrating is there is no company issuing a form 1099 for cryptocurrency tax. In the U.S., these 1099 forms are relied on (perhaps even too much) in determining the appropriate tax consequences, so without them, many are lost in what to do? Also, Steemit is not issuing 1099's to report author/curation rewards, so that is another wrinkle. So understandably, many may have questions on what to do, where to start, etc. The basic rule is cryptocurrency is treated as property for U.S. income tax purposes. The IRS released guidance through IRS notice 2014-21. Applying basic tax principles to new technology is effectively what the notice calls for, however it can prove difficult to implement: https://www.irs.gov/pub/irs-drop/n-14-21.pdf .
Terms
Feel free to ask a basic question and I will reply with a basic answer, and a link to any prior articles I may have written on the matter.
Note: The information obtained through the AMA is not a substitute for consulting a tax advisor. This AMA does not create a client relationship between the author and any reader. This is not specific tax advice, just general guidance with to help the general public understand the basic U.S. tax consequences of crypto investing. By posting a question, you acknowledge these terms and you agree to hold me harmless for any adverse consequence of relying on any response (including responses of other posters). Again, consult your own tax advisor before taking any action.
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https://pixabay.com/en/users/ijmaki-1797813/
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader.
Thanks for your efforts. Followed you, not fully understanding what I have to do if im holding for next cpl years but make alot of small crypto to crypto transactions but my entire portfolio is just a few grand.
Thank you. I would check out Example 2 in the link below which goes over exchange of Bitcoin for Ethereum as a basic example:
https://steemit.com/money/@cryptotax/bitcoin-taxes-help-me-please
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader.
Cool thanks.
Hi. Thanks for this AMA. I understand digital currency being taxed as property received for services. I was curating for a couple Steem-trails (the @foraging-trail and the @gardening-trail). For doing that, I received some "Trail Coins" on the Open Ledger trading platform. They had some stated value, some times, but not always. That is, sometimes there were trading pairs for the Trail Coins, but most of the time there wasn't. So I traded some (but did not keep track of any sale dates or values). I have most of the Trail Coins still - with no known value since there is no active trading pair on Open Ledger for Trail Coins. The amounts that I traded are not huge (currently 50 Steem, 3K bitshares, 10K Trail Coins).
My goal is to establish an approach, with the small amounts, to use in the future. The activity all took place in 2017. It seems like I have 3 choices:
For choices 2 and 3, it seems like I will have a loss of some sort because the Trail Coins had some value when I got them (albeit small), but are now worth nothing (because there is no trading pair ever available). Is there anything wrong with simply choosing #1? Thanks.
@haphazard-hstead Great question. Below is the general rule of thumb:
https://steemit.com/taxes/@jesta/steem-rewards-history-csv-exporter-via-steemdata-com
Regarding the Trail Coin scenario Notice 2014-21 Q&A 5 puts the ball in the court of the taxpayer to determine the appropriate Fair Market Value. A taxpayer should use the trade value on an exchange in a consistent manner, to the extent both the following apply:
The burden would be on you to successful argue the criteria (2) supply/demand is not met due to the lack of consistent trading pairs, lack of widespread adoption, thus no liquidity. Then, if you could not rely on an exchange's trade value, you would have to further independently determine the value of the coin. Your argument appears to be that it has very little value, to take that position could require gathering some support to back it up down the road. It might shine better light on your argument to report some level of value (instead of not reporting it or reporting $0 period). Unfortunately I don't know much about the coin to weigh in on the specific facts, however I hope this helped!
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader.
@OriginalWorks
Here is a link to general resources
https://steemit.com/money/@cryptotax/crypto-tax-series-e-book-february-2018-edition-u-s
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader.
Is steem power taxed as cryptocurrency when its not a cryptocurrency?
Great question.
It is my personal view for tax purposes, it would be viewed that Steem Power is really just Steem that is "locked in an escrow account" as it can be powered down for Steem on a 1 or 1 basis over a few month period. Thus, understandably, it would be viewed for tax purposes as restricted property.
I've seen some fair arguments that SP is a separate currency technically and is difficult to value due to the lock-up period; and because it isn't traded between users, it might not meet the "Notice 2014-21 CVC" classification. I have some general commentary counterarguing some of these arguments, but is it up to each person how to handle. Also, my personal view of SP is, there are statutory court doctrines in US tax law (i.e. economic benefit doctrine and constructive receipt) that will seek to pull Steem Power into taxation (eventually, if not on award date which I view as likely, at the latest when powered down).
https://steemit.com/steem/@cryptotax/are-steemit-rewards-taxable-in-the-usa-part-2
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader.
So as it stands right now its not technically taxed but will probably be in the future. hmm
@thecastle To be clear, my view is steem power is in fact currently taxed under the current general tax rules for restricted property for services. And I mean taxable when earned from posting/curating.
So what would not be taxed under that? Technically any kind of staking power or currency would fall under that rule. Is there a defined rule as to why a currency like Facebook bucks earned from upvotes would not also be taxed?
One of my main gripes with the current system is that I view this as an encroachment on all digital goods. I am not looking forward to having to pay taxes for playing online video games. I think that taxing steem power is a pretty good indication that is the direction we are going.
Unfortunatey, tax law isn't fully caught up with the internet.
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