RE: Crypto Tax Series “E-Book” 2017 Edition (U.S.)
I'm looking forward to the articles about deductions! ;)
Thanks for doing this. It all makes my head hurt, even though your articles make things very clear. I like working with numbers, but when it comes to this, it's tough. It just seems like so much record-keeping for fractions of a cent. I do think I can make sense of all my articles and their earnings. The earnings on comments and curation are something else!
For many months, I was doing curation for the @foraging-trail and @gardening-trail as part of the SteemTrail project. We were paid in TrailCoins, which have zero value now. I guess I need to track those payments and their value at the time, and account for that. And then declare capital losses at some point. Does that seem reasonable? Thanks!
Hi, great question. I'm not very familiar with the TrailCoins and price history. It sounds like you are familiar with the general concept of the property for services rules (i.e. which is discussed in some detail in the Steemit articles linked above). Hope the following info is helpful as a general starting point for U.S. income rules (however this isn't personal tax advice to your specific situation):
Typically, when a crypto treated as "convertible virtual currency" is received in exchange for services (such as blogging), this is taxable event and the fair value for taxation is measured on this date. Then, another second taxable event when property is disposed of for USD (or Bitcoin etc.), with a stepped up basis to ensure no double-tax. There can be situations that allow for a write-off earlier such as abandonment or theft. Also, a crypto currency subject to property taxation rules typically would have to be a "convertible virtual currency" (tradeable between users and can be exchanged for USD/crypto). Generally, the Notice 2014-21 prescribes that the value be determined based on established markets, but it is up to the taxpayer to determine value. So one question I would ask is how is value determined on date of receipt for this coin, was it ever traded on an exchange, etc.?
The worst case scenario for anyone receiving crypto for services: A crypto received for services is worth more than $3,000 resulting in ordinary income, is a capital asset, and is sold for a more than $3,000 capital loss. The capital loss limit in the U.S. was $3,000 per year (however I haven't checked tax reform to see if this changed yet).
Good luck and Steem on!
Obligatory 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 such a detailed reply. Yes, the TrailCoins were traded on OpenLedger, the bitshares trading site. Of course, the market for them was really small! The guys running the project would buy them back periodically, for bitshares. I didn't even think to track what values everything had on the dates I got the TrailCoins or made my trades. I bet a lot of other folks are in the same boat with all their crypto activities.
That would make a killer app, I think. Providing a way for people to easily sift through the blockchain and organize their actions into a tax-focused spreadsheet. I'd pay for something like that!