009: Death & Taxes
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"In this world nothing can be said to be certain, except death and taxes"
- Benjamin Franklin
1. It has been nice trading care-free on BitClout without thinking about taxes… but maybe you should.
As with most new innovations, early excitement and experimentation can dominate thoughts but that does not mean that laws do not apply. Thus, it is time to at least pause and consider what the tax implications might be. There are many users worldwide on BitClout but this will only cover the USA tax code but there might still be some new learnings for other readers.
Disclaimer: The information conveyed is believed to be factually correct but some of the discussion may be subjective and nothing written herein is advice. Consult your tax advisor for all questions.
Let's Go Deeper
Personal property is taxed (and all other capital assets). Did you sell your bicycle on Craigslist for a financial gain (sold for more than you paid to buy it)? That is a taxable gain!
So let’s be honest, some of you might not be reporting your bicycle gains, either because they are cash or you forgot that anyone can be audited. But today we are trying to understand how the tax laws apply to BitClout, not to mention all the other tax knowledge that is worth refreshing.
Let’s start with the basics of broader #crypto taxation and then we can determine what might apply to $CLOUT and creator coins.
The IRS views virtual currency as property so therefore normal property transaction rules apply.
Okay but what are the normal rules? Basically, all gains (the amount in excess of what you paid) are taxed.
Now some Clouters have mentioned that if $CLOUT is the virtual currency, they will only report those transactions. The reality is we don’t know yet if CC will be classified as a “virtual currency” and even if they do not get classified as such, they will likely still be considered property which will follow the same capital asset transaction tax rules.
Additionally, there has been a lot of talk about “long-term” thinking on BitClout but the reality is that all transactions thus far have been short-term as defined by the IRS – less than one year.
There are some more interesting things to think about when getting into “cost basis”. The cost basis is the amount you spent in USD to acquire the virtual currency (or property).
The reason this is interesting is that you can potentially do tax loss harvesting (offset a taxable gain with a deductible loss) on a CC if the price of $CLOUT goes down even if the price of the CC wouldn’t have otherwise changed. This is because cost basis is computed on USD values.
What if I get paid in $CLOUT for a group project? Then you just follow the fair market price for a cost basis – use the market price of $CLOUT when you received it.
Lastly to consider is the “like-kind” rule that states if the property or assets are similar enough, they can be exchanged with transaction tax implications. This will likely be the case argued for not taxing CC transactions. However, $CLOUT and CC are likely not similar enough to be considered “like-kind”. They have different utility and their prices are determined by different mechanisms. $CLOUT is now market-priced and CC are still priced by the bonding curve.
So, under the current USA tax laws, there is a strong possibility every CC transaction will be a taxable event. It may take years for the IRS to put out a statement on this but in the meantime everyone is individually responsible for reporting correctly so consult your tax advisor.
Because tracking CC transactions can be a major headache for individuals without some software help, I imagine some community projects will incorporate this into their apps. @bitcloutpulse is currently the most likely candidate but who else do you think will provide this functionality?
That’s it folks.
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