The significant appreciation of the STEEM Dollar (SBD) creates a unique new tax issue for Steemit Authors.
General Tax
Bitcoin and other cryptocurrencies are treated as property for U.S. tax purposes (Notice 2014-21). The receipt of property for employment/independent services is taxable (Section 83).
In the case of Steemit, the Steem Dollar(SBD) and Steem Power(SP) rewards that U.S. Steemit authors/curators receive are taxable gross income to them (Section 83). The fair market value of the awards on the date of receipt is used to calculate the taxable gross income to the recipient (for example, value on an exchange).
Example
Initial Award
For example, if an author receives a 50/50 award valued at $10.000 USD (based on exchange prices), the author would have taxable gross income for the $5.00 worth of SBD and the $5.00 worth of SP. For future sales/exchanges of the earned SBD/SP, the author gets tax "cost basis" of $5.00 in the SBD and $5.00 of the SP, so that the author is not double-taxed in the future.
Exchange Steem Power(SP) for Bitcoin
When SBD/SP is sold or exchanged for another cryptocurrency, there is another taxable gain(unless like-kind exchange rules apply which is a hard argument). This means, if the SP appreciated from $5.00 to $20.00, and then is exchanged for Bitcoin worth $20.00, there is a gain on the exchange of $15.00 ($20.00 value of Bitcoin less $5 cost basis in SP).
Exchange Steem Dollar (SBD) for Bitcoin
Generally, while the STEEM Price fluctuates, the intention was to peg Steem Dollars to $1 US Dollar, so it's value was constant. In theory, if the $5.00 of SBD is exchanged for Steem (or sold for Bitcoin), the value of the SBD should still be close to $5, which is equal to the cost basis of $5. Therefore, any exchange of SBD would result in only getting $5 worth of STEEM or $5 worth of Bitcoin. This means, there would have been minimal tax impact on the sale/exchange of a Steem dollars ($5.00 worth of Bitcoin received less $5.00 basis in SBD = $0 gain)
The Problem
Now, the value of SBD is unhinged and fluctuates (in a positive direction for holders).
Exchange Steem Dollar (SBD) for Bitcoin today
In the example above, the author received $5 worth of Steem Dollars (SBD), estimated 5 units total. If the units were exchanged for Bitcoin today's value of $8.00 per piece, the value of the author's 5 units would be $40.00 However, their basis only $5. Thus, the gain would be $35 ($40 value of Bitcoin less $5 cost basis in SBD). The same would apply converting Steem Dollars into Steem. This means, additional attention should be paid to sales/exchanges of SBD (such as conversion into STEEM) or use for promotional costs (i.e. buying upvoting).
Takeaway
For users who are in the U.S. and have earnings from author/curation rewards, it may be time to start thinking about analyzing data & furnishing it to a tax advisor. For anyone looking for more general guidance, there are some additional resources on the taxation of Steemit awards below, which start from the "beginning" (these are not a substitute for finding personal tax advice).
Resources
Below are some general resources on the taxation of Steem earnings in the USA.
https://steemit.com/steemit/@cryptotax/are-steemit-author-and-curation-rewards-taxable-usa-edition
https://steemit.com/steem/@cryptotax/are-steemit-rewards-taxable-in-the-usa-part-2
https://steemit.com/steemit/@cryptotax/crunching-the-numbers-example-of-how-to-calculate-taxable-income-on-your-steemit-author-rewards-usa
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. Last, this article does not create a client relationship between author and reader.
Picture Credit
https://pixabay.com/en/users/geralt-9301/ (cover photo)
Coinmarketcap.com (SBD photo)