RE: Are Hive Rewards Taxable Events?
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Hive is a tax nightmare for me, particularly with the layer 2 tokens, which don't generally have a price history to use to determine cost basis. And, then, you don't have any control over what layer 2 tokens you receive. They just pop up in your wallet.
My thoughts are:
- Pending rewards - not taxable. You don't have a cost basis. And, they're not in your wallet yet.
- Claimed HP - taxable as ordinary income
- Claimed HBD - taxable as ordinary income
- Interest on HBD - taxable as interest
- Interest on leased HIVE - taxable as ordinary income
- Inflation from staked HIVE - can't be taxed until you've sold, which could be never. If you do cash it all out, it has a zero cost basis.
- Payments received in HIVE/HBD - taxable as ordinary income
Going by the IRS case, only the HIVE from Inflation is not taxable until sold. The inflation rate is the reward for staking.
Proof of Brain (PoB) rewards, such as posting and voting, are for work that you do. Thus, it is income. If you stop posting and voting, you would not earn rewards. You would only earn inflation and HBD interest.
Having said that, if you haven't tracked your HIVE transactions, like me, then you'll have to use a zero cost basis. Most software will automatically do this. You end up paying a bit more in capital gains tax. But, it makes up for not reporting the income when you first got it.
What I am doing to make my life easier for future taxes is:
- turned off automatic reward claims. They make too many transactions.
- try to only claim once per month (not always successful) and record the value of HP/HBD.
- convert liquid earned HIVE into HBD. I'll have to report the earned HIVE as income. But, if I convert to HBD immediately, the capital gains are negligible.
- If I have to withdraw, I'll only withdraw HBD. It makes the job of calculating easier as it's going to be roughly $1 per HBD. Again, negligible capital gains.
- Try to not unstake HP or sell HIVE. However, if I must, it's going into HBD before leaving my wallet.
I can't go back and fix my poor HIVE accounting. It's a nightmare with claiming rewards every few minutes. But, I can make things easier for future.
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I think first question you need to ask here is, are HBD, Hive and HP classified as crytocurrencies.
If the answer is yes, then in the eyes of the IRS these are classified as As Property
Then it would follow that the only time it would be considered for income tax is when you change ownership of said cryptocurrency/HIVE/HBD/HP.
So it is easy then. Since technically each time you earn these tokens/crypto it is on the blockchain so you can get the date and amount, cross reference with the easily available price history found on multiple platforms like Binance, CoinBase and a host of other exchanges.
Since it is the difference between what you acquired them for (the price when you got them) to what you sold them for. The difference either positive (capital gain) or negative (capital loss) will be the one you add onto your tax forms.
However when you convert HBD to Hive or vice versa that is an event and is considered a taxable event (under the title "Taxable vs. Non-Taxable Crypto Events" in the link provided above.)
While there is confusion when the law talks about it being an income tax activity the first rule would be the one that applies that since cryptocurrencies are "property" the taxable event will occur when you exchange to another token or sell for fiat.
Hmm I have read IRS publication 525 and IRS bulletin 2014-16 Notice 2014-21 and come to the realisation that I agree with the income tax implications for the claiming of HP/HBD and interest components.
Dang US tax laws are harsh.
It is simple, yet not easy. I don’t know where I could export a CSV of my transactions. Thus, I would have to manually copy and calculate thousands of transactions. This is where I fail. It’s far too big of a job.
If there is a will there is a way
hive.blog has an export feature including the last 2 months.
Personally, I copy/paste from peakd.com into csv, use some formulas, some manual categorisations and some manual re-formatting and auto calculate the various income and cost streams. The advantage of peakd is that you can go back to the first-ever entry. hive.blog doesn't allow you to do so. not sure about leo though.
If this gives you such trouble, overstate the income/gain and stop wasting your time tracking it.
Your account value from what I can see now like mine is immaterial. It may as well be $0.
Unless you have a pile of NFTs or something.
Tax authorities don't care about you.
If I was in the tax authorities I'd focus on the biggest players but Hive is obscure and there is virtually no chance anyone except a public figure will be audited relating to unreported hive or tokens or hbd.
My 2 cents anyway
I have another account that is much larger than this.
But, you make a good point about overstated income. This is where costing HIVE at zero works out. If tax software comes out that can read HIVE, I could file an amendment to get some taxes back.
Yes it is a tricky thing, it's easier to file tax to the best of your knowledge than think will the taxman come after you down the road but yeah there are lots of ways to earn on hive and hard to track the cost of it all.
Good points. I don't think I have to worry about that right now because I'm way too small but those are good ideas going forward
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I think the point that @geekgirl was making was that author and curation rewards are not receipts of payments, as described in the IRS statement. Nobody gives you Hive or HBD for your author rewards, they are created out of thin air by the blockchain. Even with upvotes, it is still not a payment. They are just as much direct inflation as the HP staking reward.
However, at least according to what I can see on this "law dictionary" site, the definition of income does not appear limited to receipts of payment:
https://thelawdictionary.org/income/
I'm not a lawyer so my opinion doesn't hold much weight, but it seems like if it came down to it, it would qualify as income by the above definition.
The IRS will err on the side of collecting money.
Which is exactly why since there is no real "law" on this and mass confusion that people need to stand up to their government and protect this one last freedom. If the government starts taxing on perceived value it will KILL crypto.
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I have yet to withdraw money from HIVE. So I haven't paid taxes on it yet. The price of HIVE could easily drop back down to a dime before I withdraw the funds.
When I withdraw HIVE, I intend to use my checking account as the control point.
I live in the US and figure that I could declare the earnings either as capital gains or as income.
I think business income is the correct classification because I actively engage in HIVE and have a few expenses related to the income.
I suspect that the only way I would get in trouble with this strategy is if I used HIVE for personal expenses.
I really don't see any advantage in declaring the HBD interest separately as, in most cases, the tax rate on interest is the same as income.
For that matter, I wouldn't bother doing any tax calculations in HBD because the value of HBD varies in relation to the US dollar. The only thing that will matter to the tax collector is the number of dollars I receive when I sell my investments.
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Yes, it does get complicated if all of these activities are considered as taxable income. You list does make sense, and probably that's how IRS would expect them calculated.
It is possible to automate this process. It would be easier to get all the numbers and create a final report using HiveSQL, since everything is stored in a database. It might be a little bit more complicated for tribes transactions though since they are stored in custom_json.
Perhaps I should look into HiveSQL. I need a way to export all transactions so that crypto tax software can sort it out.