Crunching the Numbers: Example of How to Calculate Taxable Income on Your Steemit Author Rewards (USA)

In this article, I will show you how to calculate the amount of Steemit Rewards that are subject to tax in the USA, from one of my personal transactions. The income reporting / tax applies even though I didn’t sell the Steemit for USD. This article is just the “revenue” side of the equation, available deductions and will be covered in a future article, so follow for more updates!

Crunching the Numbers: Example of How to Calculate Taxable Income on Your Steemit Author Rewards in the USA (Part III)

General

In the United States, property that a U.S. person receives in exchange for their employment/independent services is taxable gross income, as long the property is either (1) transferable or (2) no longer subject to a substantial risk of forfeiture. Bitcoin and some Altcoins including STEEM are treated as “property”.

The amount of income is based on fair market value. Fair market value is calculated on the date the property is received. For STEEM Power and SBD earned for a reward, the taxable income is calculated on the date it the award is earned. Earning STEEM Power is treated the same as earning STEEM.

In this article, I have calculated only the “gross” income from Steemit earnings from just one of many wallet transactions, and I am only a 1-2 times per week poster! There are deductions available under U.S. tax law, which will be discussed in the next installment Part 4.

If you have not read the Part 1 article regarding taxation of STEEM rewards, I recommend checking it out, as the following example will make more sense. You can skip Part 2 as that is just a TLDR version of Part 1.

https://steemit.com/steemit/@cryptotax/are-steemit-author-and-curation-rewards-taxable-usa-edition

The Reward

On October 15, 2017(approximately 10-11 PM EST), I received the award of 2.26 SBD and 2.208 Steem Power for authoring the Part 1 article on Steemit taxation. By the way, here is my wallet transaction from 10/15:

Table 1 Price of STEEM to BTC

Within an hour of earning my October 15th award, I pulled the STEEM-to-BTC exchange rate from Bittrex. This table also includes an estimated STEEM-to-USD amount:

(10/15/17 11 PM EST)

Note: Because STEEM Power exchanges directly into STEEM, I used the exchange rate for STEEM for valuing STEEM Power.

Table 2 Price of SBD to BTC

At the same time, I also pulled the Steem Dollar (SBD) to BTC exchange rate from Bittrex, as well as the SBD to U.S. dollars (USD) amount:

(10/15/17 11 PM EST)

Table 3 PRICE of BTC to USD

Then, I pulled the most recent price of Bitcoin (BTC) to U.S. Dollars ( USD) exchange rate from Bittrex (because STEEM/SBD is not actually traded directly to USD on Bittrex, it is first traded to BTC which can be traded to USD):

(10/15/17 11 PM EST)

The Number Crunching

Below is the calculation of my taxable gross income from my October 15th reward (explanation to follow):

Method #1 (Long Method)

For Method #1, there are two steps:

1. Translate amount of the STEEM Power and STEEM Dollars (SBD) earned into Bitcoin, using the two exchange rate Tables 1 & 2.
2. Translate the Bitcoin amount calculated in Step #1 to U.S. Dollars (“USD”) based on the Bitcoin/USD exchange rate Table #3.

Result is $4.58 taxable gross income.

Method #2 (Medium Method)

For Method #2, amount of the STEEM Power and STEEM Dollars (SBD) earned are translated directly into USD based on the STEEM-USD amount that was listed in Tables 1 & 2 by Bittrex.

This is a short cut method, however the reality is the STEEM/SBD would be exchanged on Bittrex to Bitcoin, and then Bitcoin would be traded for USD. Therefore, Method #2 should always be re-calculated for accuracy (hence my Method #1).
Result is $4.58 taxable gross income.

Method #3 (Short Method)

There is no real “Method #3,” this is just Steemit.com’s U.S. value of the reward at the time the monetization period ended.
Result is $4.52 taxable gross income.

Based on the test above, there is a 1.3% difference in the value of rewards using Bittrex rates, and the value of rewards listed by Steemit.com on the moment of the reward. Therefore, it is possible for the Author to get the USD amount earned from a post directly from Steemit’s website and have a close-to-accurate valuation number based on exchange rates. If this is the case, why I am I going through all these calculations Method 1/2? Because the same data is not readily available for your specific share of Curation Rewards from Upvotes, and every other wallet transaction – you will have to separately apply the exchange rate method. If you are aware of a quick/easy way to get this wallet information in current USD exchanged valued based on date of transaction, please let me know

What if I sold my STEEM for Bitcoin/USD and the USD Value Changes

In 2017, I will have taxable gross income related to value of my October 15th award, based on the total SP/SBD fair values of approximately $4.58. If the price of STEEM and SBD went up by 10 X and the value of my award is now worth $45.80, I would only pay tax on this future appreciation if I actually sold my STEEM for Bitcoin/USD.

Assume a Year from Now I sell my STEEM Currencies for Bitcoin

If in a year from now, I sell my October 15th award SP/SBD currencies directly for Bitcoin which has a USD value of $45.80. In the sale of October 15th award of SP/SBD, I will have a “basis” of $4.58 (the amount of income that is taxable to me on 10/15/17), and a “sales price” in the future transaction of $45.80 (USD value of Bitcoin I would receive) – for a gain of $41.22 ($45.80-$4.58). If SP/SBD is a capital asset in my hands, the $41.22 gain would be a capital gain.

What if I Sell the Bitcoin for US Dollars (USD) in Another Year

Then say, in year 3 the Bitcoin value went up from $45.80 to $100 and I sold all of this Bitcoin for USD. I would have a taxable gain with U.S. dollar proceeds of $100 and “cost basis” in the sale of $45.80 (value of Bitcoin received in year 2) – a gain of $54.2 ($100 - $45.80). If Bitcoin is a capital asset in my hands, the $54.2 gain would be a capital gain.

Takeway / Your Input

This may not seem like a challenging math exercise for one wallet transaction, however I know that being able to do 365 days’ worth of transactions without some degree of automation will be a real challenge to keep up with (as well as tracking future sales when cashing out). For authors who post and curators who apply upvotes multiple times per week, there definitely needs to be an automated approach to this.

What are your thoughts, was this helpful in any way? Are you aware of an automated method to calculate this? Please share!Please feel free to upvote, follow or resteem if you enjoyed!

Coming Next

As I mentioned above, it’s not all income taxes. There also are deductions available under U.S. tax law. How to treat deductions depends on whether your activity is a trade or business, or a hobby, or an investing activity; which will all be discussed in the next installment Part 4.

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.

Picture Credit
I took screenshots from Bittrex in making this article
https://pixabay.com/en/users/WerbeFabrik-1161770/ (cover photo)
https://pixabay.com/en/users/FunkyFocus-3900817/ (time vial photo)