RE: The 4% withdraw rule and why you may never need to completely cash out of Steemit
I juust got to STEEMIT yesterday, but the first thing I wrote about was what the tax ramifications were. You need to keep in mind the IRS notices strongly support the idea that they will count vested STEEM as income immediately upon your reciept of it.
There is no proof that the IRS has treated anything like that in the past. For example if it's an unrealized gain, as in you've not realized it, then is it income before you can spend it? This really depends and could end up in court but if the IRS says even virtual tokens can be seen as legit income, then this would apply to literally any other thing which can be used to barter with, including tokens in online games which have nothing to do with cryptocurrency such as World of Warcraft, Diablo, or even Second Life.
I've seen no evidence that the IRS has cracked down on gamers who in theory could trade their game items for other items. As far as I know this only applies to the trading of the game item for fiat or real money. This of course could be wrong but then millions of gamers and people working with virtual tokens would also be wrong as digital currencies have been used for quite a while.
Will the IRS seee cryptocurrency as money? So far it is property. So if you sell your property for fiat then it's money? If you get paid in monopoly money, or in WoW gold, how is it treated? We know with mining it's treated as income the moment it comes into existence, but are all digital tokens treated as mining? Is there any reason to believe Steem more resembles mining than WoW considering the income on Steemit is earned by blogging while mining is automatic? And you can't really buy much anything with Steem Dollars except to trade it for Bitcoin and into fiat, but it can be used for barter and has monetary value, but so does anything.
Nor have I - and perhaos they won't. But the current notice seems to say they feel they could. I think the take away is, the larger your STEEM pile, the more likely you should probably at least get an evaluation by a CPA before making assumptions about potentially massive amounts of money and planning around that.
Can you show me the current notice? I haven't seen the IRS make any recent announcement on this matter.
But I have seen debates about this going as far back as 2007 when the idea of "virtual taxes" were being discussed. There is no evidence that I can find which shows the IRS cracked down on Second Life or WoW players for in game activities. If evidence could be found indicating that then we would have precedent and my opinion would change.
So far even the most draconian interpretations I've seen haven't gone as far as to say gamers owe taxes on virtual activities. This however could change in the future and I'm not a lawyer or tax expert. The fact is the IRS is deliberately leaving things confused.
References
The IRS's current rules for cryptocurrency are defined in two posts: IR-2014-36 and the accompanying notice 2014-21
Find them here: www.irs.gov/uac/newsroom/irs-virtual-currency-guidance
I really want to make clear, I agree with the fact that this is all totally new and fairly up in the air. The current paradigm doesnt make sense entirely but seems to be trying to tax new "value" upon its coming into existence.
Everyone has their own personal risk assessment to do, especially in legal frontiers like this. Mine tends to be very conservative.
the take away though is that just to say "I see no risk", period, is a very bold statement when dealing with the amounts of USD equivalent value STEEM is now producing in conjunction with the IRS's desire to tax that burgeoning value
Right but it might be technically impossible to track value to that extent with current tools. We simply have no way to determine what the value of Steem is prior to at least a bank connecting and willing to accept Steem for fiat. I mean does any bank accept Steem in exchange for fiat so we can have an idea of what Steem is worth?
Otherwise it's just a bunch of barter to barter until it gets to Bitcoin. Bitcoin actually does connect to the banking system and actually has a fiat price, because it tries to be a currency. Steem Dollars don't match up to $1 so we don't know for sure what that is really worth, and while you can trade it for Bitcoin which really does have a price, then it's Bitcoin where things are slightly more clear but not significantly better.
So basically what you are saying is that there is a potentially impossible and confusing tax burden on bloggers who use Steemit. The only solutions will be to press the IRS to clarify their position, and to change the laws to relax the tax burden so that it becomes something reasonable. As you describe it, not only would it be non-practical for Steemit users, but also for the IRS to try to enforce it. All sides would lose as the IRS would seem to have to spend more money than they could gain trying to enforce those policies, and then the individual users cannot track all that unless they are an accountant and even then it would be difficult.
If you go to a CPA it is not a guarantee that this will protect you. You are right there is risk involved (regulatory risk), but I see no way to reduce it. The situation seems to be to pay the taxes you think you owe the IRS and wait or the IRS to correct you in the future.
That's what my post was about - it really does sum up my whole position
https://steemit.com/steem/@dber/let-s-talk-about-taxes-2017613t316666z
The ultra conservative approach - meaning total protection - is to do what i plan on doing - which invovles a ledger,and always cashing out enoguh to maintain the worst case scenario tax burden for that year.