How to cash out rewards from Steemit in Steem, SBD, and SP & what is the easiest way to calculate and pay taxes on our Steemit earnings?
One Sentence Summary: I use a spreadsheet on Airable to record and calculate the Steem and SBD combined with QuickBooks Self-Employed to track income from all of my rewards redeemed from Steemit because according to my research we need to pay both income tax on our Steemit rewards as soon as we redeem them into our wallet in most countries and, if we are in the US or a country with capital gains, we also need to pay tax on the difference when we sell to USD or fiat currency at a higher rate than what we received at.
Rewards earned from Steemit are most similar to mining rewards which, according to the US IRS and probably most governments, are taxable income to be reported on the day they are received at the USD or current fiat market rate. While other Steemit users have created well researched posts clearly explaining reasons for not paying tax on Steemit rewards right away, the safest approach for most of us that are not paying for an accountant or CPA to file all of our taxes seems to be simply paying the tax immediately upon receipt. The worst offense that we can commit with taxes is not reporting income and I personally have no interest in being in fear for years of getting an audit because of not reporting my Steem rewards.
When I click the "redeem rewards" button in my Steem wallet, I count this as beginning the taxable event because prior to redeeming the rewards, I have not taken possession of them. Imagine if UPS tried to deliver a box to my door. Until I sign for it, UPS possesses the package. After I redeem my package, I have the ability to begin further transactions with it such as selling it.
Using an Airtable spreadsheet with formulas which calculate the USD value of Steem automatically, I input what I received in Steem Power and SBD as outlined by the rewards. For simplicity, if I receive small tips in Steem I just add these to the rewards total. If I receive a larger tip such as $25+ I enter this as a separate transaction on the day it was received.
Immediately upon receiving SBD I choose one of two actions. Usually I change all SteemDollars to Steem using the marketplace or BlockTrades. With this approach, I then enter the final amount of Steem received from the SBD trade into the spreadsheet. Alternatively, I can cash SBD to any cryptocurrency on Bittrex or to Bitcoin, Ethereum, or Litecoin on BlockTrades on Coinbase which allows me to sell to USD and withdraw to my bank account. In this case I enter the final USD amount cashed out in Coinbase in my spreadsheet.
To calculate the Steem price, I use http://www.coincap.io/ by entering the 24 Volume Weighted Average Price or VWAP for Steem which then multiplies the amount of final Steem via Steem Power and SBD I received to a total USD I received that day.
Using QuickBooks Self-Employed, I enter a transaction that day for the total USD value into my business income for the day which then gets hit with self-employed tax plus income tax adding up to almost 35%. QBSE then tells me exactly what to pay in estimated taxes each quarter based on my total business income including my Steemit rewards which helps me greatly in my planning and removes most of my anxiety.
If I ever decide to power down and change my Steem Power to Steem and then to sell my Steem to USD, then in addition to the taxes I paid for receiving the income, I also have to pay capital gains based on the difference in what I received it at versus the price the day I sell it. For example, if I earned and powered up a total of 1000 Steem in rewards at an average of $1 per Steem for a total of $1,000, I would follow the first six steps and pay tax on $1,000! If I then powered it all down and received 1020 Steem out from the 2% interest and then sold it for $2 per Steem, I would receive a total of $2,040 out of which I already paid tax on $1,000. The remaining $1,040 would then be taxed as capital gains on the initial $1,000 which is at the standard income tax rate if I held the Steem less than a year from when I received it or 15% currently in the USA if I held it longer than a year.
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