Brainstorm- Tax Compliance Features

Features
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Taxes on cryptocurrency are an unfortunate reality in many countries. What features could be added to vaults, the Maidsafe browser, or even the Maidsafe network itself to help users handle taxes?

I know there are other laws in other countries, but I’m starting with the USA as they were the first to enact cryptocurrency tax laws and other countries are likely to look to the USA for inspiration for their own laws.

Being able to handle taxes more easily can help with coin adoption as people won’t be frightened of being unprepared when the year ends. It also might convince people to join the network as their taxes are easier here than with their old coin.

A quick USA tax overview

  • Cryptocurrency is considered a property for tax reasons. It’s taxed sort of like stocks.
  • The value of the currency is based on the prices used on exchanges for that currency.
  • Mining/farming/staking is considered a business for tax reasons.
  • Selling cryptocurrency is taxed.
  • Using cryptocurrency to buy things is also taxed.
  • Losses and business expenses are still calculated in when dealing with cryptocurrency.
  • This is federal law. More from the IRS: https://www.irs.gov/pub/irs-drop/n-14-21.pdf
  • A tax year is Jan 1st until December 31st.

Did I miss anything important in this short rundown or make any mistakes?

Ideas to help users with their taxes

I think the vault should have some features to help people know how much they earned. Vault features are saved locally in the vault and can be checked by the user at any time.

Each vault needs to track how much currency it generates if it generates some. This should be a running tally that cuts off on December 31st at midnight, PST. It keeps this running tally every year. The tallies from past years plus the current amount made are kept as long as the vault exists.

Each vault could tell a user how much their coins are worth. It would do this by looking at the value of the coin over several exchanges, averaging these values together, then applying them to their coins. If there is no direct USD-MAID conversion, it would need to be MAID-BTC-USD instead. This could be kept in the ledger for multiple years to help a user see how they are growing. It is only tallied when the user checks their ledger or when the year ends.

If it already isn’t in the works, a running ledger of coins in and out would be helpful. The ledger could also tally total coins in, total coins out, and if more came in than out. This might help people calculate gains/losses.

Example ledger:
Current coins: 12,340
Coins earned Year to Date: 85
Value of earned coins: 223.53 USD
Price per coin: 2.629 USD
Total coins in Year to Date: 4,349
Total coins out Year to Date: 8,348
Net change of coins: -4,084

2017 totals
Coins earned: 43
Value of earned coins: 92.34 USD
Price per coin: 2.147 USD
Coins In: 5,458
Coins Out: 2,403
Coins held at year end: 8,293
Net change of coins: +3098

The Maidsafe Network could also help track a user’s coins.

An optional personal account could be created with no personal identifiers outside of an ID for your account. I am aware this lowers anonymity a little, but it may be a worthy tradeoff to help using the coin as a currency be more accessible to regular people.

This account would be stored on the network. The personal account could be accessed by apps on the Maidsafe network. It is not accessed via anything else. By having one standard account for the entire network to use people avoid fragmentation of their information. No more looking at 10 different accounts and doing a ton of math: it’s all in one place!

The account is used to track when you get a coin, spend a coin, or gift a coin. This is different from the vault itself as it only tracks things done over the Maidsafe network. For example, if someone makes an online store app the personal account would interact with the online store app to track how much was spent. This could double as a means of making receipts.

Apps could also generate similar accounts within themselves using this general account template to help with taxes. Using the online store app as an example, the app could generate an account for the shopkeeper where the shopkeeper can track all their sales, the price of inventory, the price of shipping, and any losses from lost/broken/defective goods all in one place.

Any other ideas that would help Maidsafe users be compliant with their local tax laws?
Better versions of these ideas?

I know I didn’t cover stuff done on exchanges or outside of the Maidsafe network. Unless an exchange is on the Maidsafe network (in which case it could use that network account I suggested) there’s not much Maidsafe can do to help that I can think of. Can you think of anything?

Please avoid tax evasion talk in this thread. This is a thread to help those who have to take care of their taxes and intends to stay as legal as possible. Thank you!

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It’s not the role of the network to track user’s coins:

  • first, this would remove anonymity
  • second, network has no notion of USD you mention in your example

But an app could that. You pass the ID of your wallet and it would track the movements in it. It could also fetch online the price of safe coin in your local currency each time there is a movement.

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Exactly

Also the network does not know what coins you have. Its part of the security.

The only way to hope to find the coins someone owns is to know

  • Their ID
  • Search the whole 4 billion addresses for coins with owner ID
  • Store this somewhere for the authorities to access for “tax purposes”

Anonymity is lost if you have KYC associated with an ID as would be required by various authorities when you have a central store of this info.

Simple - see a tax accountant with a list of your coins.

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As tfa says. This is not the role of the network,but an app.

It is a necessary app to legally use the safe network though.

Paying 10$ to an accountant for every microtransaction is not a feasible solution, so either you track your transactions with an app or you skip the taxes and hope the authorities doesn’t find out.

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The basics that’s required and that all wallets should provide is an option to export a list of transactions made through the wallet software as a comma separated list.

Actually calculating the tax from the transaction list is not necessarily something you want the wallet software to do. For one, it may require exchange rates for many fiat currencies and in the beginning they may only be available through APIs on the regular web. Some may have accountant or existing software they like to use, others might want to to the taxes themselves in excel. As long as the wallet software can export a list of transactions, this is all possible.

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To be legally ok, should it not be enough, if the government asks you, that you can give them the list of MaidSafe transactions you’ve done, and the parties you received/send MaidSafe from/to are known and seem ‘legal’?
And that the government is restricted: it could request MaidSafe owners (if they are allowed to request: for starters only citizens from their own country) individually for their transactions, but should not be able to get an overview of all transactions, like with Bitcoin.
Should something like this (which probably should be optional) be implemented, the next question is of course how.
Edit: this is less about the taxes, but more about necessary steps to convince government you aren’t frauding. For smaller amounts that is less a problem I think, but for bigger amounts…

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Not really, you’re supposed to calculate your taxes based on those transactions.

Now, my point was really that although wallet software should perhaps not do more than having a way to export taxes, the whole process of calculating taxes is kinda cumbersome and complicated. Even if you only do a transaction between two SAFE wallet, you may be required to lookup the exchange rate for SafeCoin to your local currency to calculate the gains in your local currency at the moment when it’s exchange. If someone creates a nice, easy to use app for calculating taxes, then that will make mainstream adoption quicker. It’s something that will come naturally as the network grows though, since there’s demand for such an app, someone will make it.

Where I live, you’re supposed to calculate the taxes and then hand in the results. If they suspect something is wrong, or you are randomly chosen, you can be asked to hand in the full list of transaction used to calculate gains and losses. Not that they would have any means of verifying that the list is complete or accurate though. If you don’t have the list of transaction, they could say, we think you actually owe X amount of taxes, prove that you don’t. With SAFE there’s no real records anywhere, so you could just cook up something. With bitcoin, you have the public ledger that can be analyzed, with SAFE, there’s no such thing and enforcing something like that would break how the network is supposed to work, but having an optional ledger bit as has been talked about, would be very useful for companies, that could opt to keep this on and use only approved wallets that perhaps has some connection to an auditor or whatever, this will all be external to the network though.

With SAFE, it’s not really possible to stop someone from hiding transaction or using wallets that doesn’t log your transaction, nor should it be. I suppose that in the beginning, most people won’t bother to calculate gains or losses for every single transaction that might include uploading a picture to your photo album and whatnot.

It is an interesting problem though, that you in theory could be legally obliged to provide a list of all your transaction, as this list could be rather privacy invasive. If SafeCoin is used for lots of things in lots of apps and websites, then having a detailed list of all transaction could be used to infer a lot about a user. Normally this isn’t so, because normally we’re talking stocks or other investments and they don’t really tell you much about someone. It there’s some specific transactions a user would want to hide, that would be relatively easy, but if the Safe Network included popular social media apps etc the rest of the transaction list might nonetheless be very telling about the users habits, likes, dislikes, political opinions etc.

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I think the OP is a good idea, though as others noted it would not be good for a vault to do some of these things in the way it is suggested.

Most of what’s needed can be done by an app, but the app will need to know what was earned in a given day (or possibly more accurately) in order to calculate the earned value.

To achieve this a vault could create a log on the users’ hard drive which records the time of each Safecoin earned. An app can import that, and import a transaction list from a SAFE wallet, and then generate the information needed for accounting and tax purposes.

So I think an option for a vault to log coin earnings makes sense, and is enough.

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Nope.

If I buy a disk drive do I have to record my use of it or even its purchase. Only need to record it if its for business expenses.

If I buy resources on SAFE do I have to record that. Only if I want to claim business expenses. For Australians the ATO has stated that purchasing virtual currencies in order to purchase things is not a taxable event.

If I am farming then I just need to record the number of coins earned if I need to lodge a tax return for that.

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You’re lucky then. Where I live it clearly states in the guidelines from the tax authorities that any cryptocurrency transaction is taxable, and that you must keep records of every single cryptocurrency transaction and provide these records if they ask for it, even if you just used cryptocurrency to buy a chewing gum. If you buy a chewing gum with crypto, you have to calculate any gains or losses on that transaction. I assume it’s like this in many countries.

The reason why it’s like this is simple, they don’t want anyone to be able to buy cryptocurrency, enjoy 10x gains and then just spend the money without paying taxes on the gains.

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Same stuff here in the US. I haven’t had any issues yet with the tax man, but if I do, I’d like to think id have the guts to print out my wallet transactions, hand them a USB key with the full BTC blockchain, and saying “figure it out”.

Back to OP:
No way should this be baked into the network. +1 for this being an app. It totally breaks privacy. IMO a big part of what makes safe better than BTC is the lack of the blockchain that records every transaction ever. If safe goes to Bitcoin like prices, sure, I’ll prob pay some tax on it. However, if I buy at 50 cents and buy a cup of coffee with it when it’s at 51 cents, I’m not logging that transaction. That’s obscene. However, that’s what the letter of the law calls for here. Safe makes it possible for me to use my discretion because of its anonymity.

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Not our problem. Taxation is theft. Plain and simple.

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Absolutely awful idea for the network to even attempt these things. Like said above, an application purpose built for such is the best you could do. I for one am not willing to give up any degree of privacy so you or others can comply with your local tax compliance needs. Further, I think adoption incentives would maximize since the user is given the choice on, if, how much, and when one chooses to communicate with local tax authorities.

I will be happy to build such an app or add it to an existing trading/tax service I already provide (no plug here) if more users seem to think they would need this type of service. Not sure many will byte, but you never know.

Being that you do not have a chain to audit, proving such transactions or their provenance may be nearly impossible. They will not be able to track 1 safecoin or 1million. They will see what you trade via Fiat exchanges into regular system. I guess you can “state” source of funds and pay any gains you may have had at that point. Honestly though, I think a few new dynamics will emerge around this issue.

Anyway Safecoins will not have the potentially non-fungible issues inherent in blockchain. With no provenance available to track you cannot prove it was a priest, daffy duck, or a Mexican drug cartel if you wanted to. So having to track each transaction and account for capital gains vs currency use will most likely be a concern that is mooted due to privacy features. If you send it to an exchange to get fiat, then you already have all the tracking services available to deal with that clusterF*k.

If an imaginary tree falls in an imaginary woods, does the tax service hear it? That’s how I view in network transactions.

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