How are you Accounting for Steemit Earnings?

Recently I was looking at my earnings on Steemit with the aim of getting on top of my accounting and dreaded tax returns.  After last year I promised myself that I would do things monthly and set aside my taxes so at the end of the year I don’t have this whopper bill and no cash to pay it with.

It’s funny because I am a CPA accountant and should really know better than to leave my own accounting and tax to build up. 

My next tax return due will be my first Tax return with crypto earnings, including Steemit earnings.  

Everyone here has a different situation and are governed by different tax laws and rules and how taxes are calculated on Steemit earnings remains a mystery for many, including me and I am an accountant!

So this post is an effort to lay down my approach to Revenue recognition relating to my Steemit earnings and to gather your thoughts and feedback on it.  Drawing from my experience as an Accountant and dealing with Revenue Recognition issue’s and regulations, I hope to cover most options.

First and foremost my account on Steemit is rather simple.  I am not a witness, I don’t own any bots or services on Steemit that users pay me for.  So my income is author rewards and curator rewards, which I collect when I claim my rewards.

However, I have also received gifts of both STEEM and SBD.  In Ireland we have gift tax.  Do you have this where you are from? Because if you do, you should keep track of how much you received.

My earnings from author rewards and curator rewards, how could these be classified by Mr Tax Man?

Is it a Gift?

Well first off all, I am not guaranteed to be paid for a post.  In fact rewards could be removed at the last minute by flags.  Does that make all of the income from Steemit a gift? If so it would all be taxed as a Capital Gain and not Income Tax.  If I used bit bots to purchase votes, then these votes are not a gift.  But I don’t use them, so I don’t have to worry about that.  How about self-votes, because you can gift to yourself…

I really don’t think that the author and curator rewards on Steemit could be classified as a Gift for tax purposes.  What do you think?

Is it an Asset?

In most countries, Cryptocurrency is not regulated and not recognized as a currency, but an asset.  This is an extremely important fact when it comes to tax and accounting regulations.  It seems to be the main cause of confusion because Assets are not taxed or accounted for in the same way as Revenue.

For me, well it is a form of currency and so the rest of this article will be based on that thinking.

   

Is it Trading Income/Revenue?

Trading Income/Revenue in this case being activities in the normal course of business.  We are not talking about trading crypto currencies on exchanges here.

I believe this to be the most likely outcome from a tax man perspective.  I am writing content, which takes time.  In return for this content and time I am rewarded at a variable rate with STEEM and SBD.  

Steemit may not have been ‘the normal course of business’ however if considerable time is spent on it, then it becomes normal and would be seen as diversification and a new revenue stream.

Profits earned in a registered company (Limited company in Ireland) are subject Corporation Tax. This profit can come from trading income, investment income, rental income, interest income and there are also other types of income.  As there is a swap for time, I think Mr Tax Man would constitute these earnings as Trading Income and treated as revenue.

If you are a sole trader, so you do not have a limited company, then the income would also be classified as Trading Income and taxed at income tax rates.

When is the Trading Income actually recognized as Revenue?

Accounting regulations lay down clear guidelines on revenue recognition.  However Steemit is very different as not all payments are liquid, but are classified as vests.

With Steemit we have the option to be paid 100% power up or 50%/50%.  All liquid SBD would be taxable as it is liquid.  However there is still the power up element as this has a 13 week power down time frame.

Now if I was Mr Tax man I would ask myself the question, with this power up/ power down, do you have the choice to begin power down immediately? As the answer to this question is Yes, I would then ask my self the question – why are you leaving it in Steem Power?

There are a number of reasons people keep Steem Power.  It gives a higher vote worth, it allows you make gains/losses when the price changes, it proves faith in Steemit.  But all of these answers boil down to one thing.  Investment.

If you chose to keep the Steem Power, then you are making an investment in STEEM

What do you think?

When you accept a payment claim you get the increase in SP and SBD at the same time.  The SBD is recognized as revenue then.  This part can be very clear cut.

The SP on the other hand could be recognized as revenue either at the same time as the SBD, ie when the payment claim is accepted.  After all an argument could be made that you are a creditor of Steemit when it comes to the SP and 13 week power down. With the nature of Steemit and the fact the claims could be rather often, for simplicity in calculations it could be argued that this option is also more cost effective.

Or, option 2 is that it could be recognized as revenue in equal amounts over 13 weeks following.

Personally I feel we are creditors of Steemit, although by using the word ‘vests’ may have implications on this standing.

When Does the Trading Income become Investment Income?

Depending on when revenue is recognized would depend on when your SP becomes an investment.

Let’s take case 1 again, where your SP becomes recognized as revenue when it is claimed. You still have to wait 13 weeks before it is all liquid.  Due to this, you cannot make an investment until you have something to invest.  Therefore the investment crystallizes in equal amounts over 13 weeks.

However under this case you will also have exchange gains and losses between the date payment claims was accepted and the Power down date.  These gains or losses would be recorded against trading income and not investment income.

But if the income is only deemed as revenue over a 13 week period after the claim is accepted then the investment also begins at a staged rate over the 13 weeks.  So it’s the same either way!

Does this make since or have I lost you?

What is the Value of my Steemit Earnings?

So we have SBD classified as revenue as soon as the claim is accepted and we are unsure of the Steem Power.  Let’s look at the different scenarios for valuation.

The date the claim is accepted SBD is recognized as revenue at the exchange rate on the day.  An average daily rate is normally acceptable.  Your accounting records at minimum should keep both the SBD payment amount, date and exchange rate.  This is the trading income value to be recorded as revenue.

If Mr Tax Man deems SP to also be recognized as revenue on the same day, then the same rule would apply for SP and SBD and things would be nice and simple. The exchange rate use for valuing the SP would be the exchange rate on the date the payment claim was accepted.

If Mr Tax Man deems SP to be recognized as revenue of equal amounts over 13 weeks, then the revenue would be valued at each weekly power down amount.

That covers Trading Income.  Now let’s look at valuing investment income very quickly

We saw that when the investment crystallizes, it seems that SP would be classed as an investment in equal amounts over 13 weeks.  Each weekly amount would be valued at the rate on that date. If it is not powered down, gains and losses are recorded based on the exchange rate on the date you are reporting.  So lets say you are reporting to the year end 31st Dec and have not powered down all year.  Then you would take the exchange rate at that date and use it to value the SP holding. The difference between the value on date of crystallization and year end (or any other reporting date) is the recorded gain or loss.

I mentioned the word investment and this leads to some more questions. What are you investing in? Are you investing in Steemit or are you investing in your own steemit account with the aim of using it to generate more income?  You see there are different classes of investments and different classes of assets.  In a follow up article (when I get to that part of my accounting) we will look at this in a lot more detail.

Conclusion

At the moment I will be accounting as follows:

Claims of both SBD and STEEM will be recorded as revenue on the date the claim is accepted at the average exchange rate for that day.

To account for the 13 week power down, well I never power down, so all of this will crystallize into an investment for me.  Therefore I have two calculations to make.

The first is to account for the exchange differences between the claim acceptance date and the weekly power down dates.  Each week the power down amount is converted to local currency at the exchange rate on that day. There will be 13 different exchange rates. At the end of the 13 weeks the local values are added together to get a total amount.  The difference between this value and the Revenue recognized value is classes as difference of exchange on receipt of payment.  Any gain or loss to be included in the accounts.

The second calculation is the valuation of the investment or asset.  We have actually calculated this in the above step.  Each week the power down amount is converted to local currency at the exchange rate on that day. There will be 13 different exchange rates. At the end of the 13 weeks the local values are added together to get a total amount.  That is the value of the investment.  But remember, this must be done for each claim you accept.

It’s worth remaining you now that this article only looks at revenue for author and curator rewards.  It do not look at elements of witness rewards or other rewards that are/were available.  For some Steemit is a business, with bid bots, SP leasing, DAPPs and everything else that’s going on.  In fact accounting for a business on steemit requires a bit of work, and this article only touches on the revenue recognition element of author and curator rewards.

This is how I am accounting.  It is not accounting advice as at the moment there are no accounting standards or regulations around the area of cryptocurrency.  Advice varies from Accountant to Accountant because of the lack of regulation and until the time of regulation and accounting standards, I could be deemed wrong, just as quickly as the next accountant. So if I don’t give advice, then I am not liable.  This is also the reason many other Accountants won’t touch crypto.

I would love to know how your account for your steemit earning?  What records do you keep?  How often to do update them?  Do you think keeping these records are important?  Please do leave your comments and feedback below

Follow Up

I will do a follow up article showing you how you can quickly gather revenue data from your steemit account from SteemSQL and keep it up to date in excel with a quick click of the refresh button.  In that article I will also show you how you can automatically value the revenue using live data from coinmarketcap.  Really it is the minimum bookkeeping you should do.

I will also do a follow up article on how you could account for the investment you make by leaving SP earned from curator and author rewards in your account and we will also look at asset classes in that article.

Is there any other follow up you would like to see?