RE: For U.S. Steemit Authors - The new Steem Dollar (SBD) Tax Dilemna (Because it couldn't get any more complicated)
When streaming money arrives, the tax rules will have to change because it will be impossible for anyone to be in compliance. With every click on this platform, you're generating a transaction and it would simply take too long to do a tax return. It's a situation where your daily backups take 36 hours to do. Most people active on this platform will not be able to figure out the tax on every single micro transaction which is typically worth about a tenth of a cent. It would be akin to asking you to read the entire Library of Congress in one evening.
I already explained the situation to my tax accountant and she assured me that rule changes will be forthcoming because it will simply be impossible for anyone to be in compliance.
One more thing, since I run a software business, there's also the argument that all of the expenses I pay to the Steem blockchain can be construed as a business expense because it helps me promote my business, so which is it? Is it a capital gain or a deduction when I spend my SBD's for "advertising"?
Definitely valid concerns on your part. Form 1099 reporting by exchanges etc. would help simplify crypto compliance for many U.S. taxpayers (otherwise many will miss the compliance without a proactive approach).
Interesting question on the software business. Just curious if you could please give me an example of paying for expenses, do you mean paid upvote/resteem? I have an article coming out on the Steemit author deductions soon (aiming for January if not by end of year). Good luck and Steem on!
If I write a post such as this one and then send SBD or click on the promote button, is it not an advertisement? Sure it might get flagged if it comes across to spammy, but where is the line drawn? My accountant advised against claiming any of these as a deduction and said that unless money exits the platform that you can't count capital gains/loss.
However, because Steemit is a website that interacts with the blockchain, transfers between SBD's, Steem and Steem power could still be considered transactions that exit the platform (since the same could be done on Busy, eSteem, etc). The problem is that all of these clicks we make on the platform, are also transactions on the same blockchain and the ability to distinguish between these is lacking. Without it, this creates the assumption that every one of these must be taxed and then you're sometimes in a situation where you're being taxed multiple times on the same principle.
I'm an IT expert and have been studying the bitcoin architecture for a few months now. The rules will have to adapt because the banking system and government is lagging behind in both technology and understanding and they don't have the ability to know when a change of address is simply a change within the same account or to an external account because the hashing algorithm only works in one direction.
BTW, I don't use exchanges because you run the risk of being goxxed, so a 1099 form from an exchange won't help. When Lightning Network comes online, then it will make for extremely difficult tax enforcement. We are running into a perfect storm situation. I'm a diabetic and need to keep my ACA insurance, but because social security was used up for the Iraq war, the IRS has to tax us again in order to pay us seniors (there's an IOU in the SS Trust Fund signed by G.W.Bush).
Now with crypto beginning to cause an equity drain for the USD, Gresham's law will likely bring hyper inflation at some point. The end result being that government will no longer be able to function. My guess of time line for this happening is sometime in the next 5 years.
I think what will eventually happen is infrastructure inversion to the legal system. Business leaders will eventually become more powerful than government and will have to function as an interim government. People like Elon Musk, Mark Cuban, Jeff Bezos, etc, won't want to see all their work go down the drain, so I suspect that at some point, they will step in to fix the IRS or whatever agency is left to keep things running.
The bottom line is that the IRS is going to have to stop being stupid, quit with their abuse of power, quit coddling parasites, otherwise we'll all be dead.