Thot Crimes:What 4chan’s latest crusade teaches us about content creators and those that report them.

I want to start this article off with saying I have no affiliation with 4chan, nor do I condone hiding income from the IRS or state revenue boards. This article was born out of the most recent push of 4chan users to utilize the IRS whistle blower program as a tool against individuals they do not agree with. The movement which started this past weekend, encourages people to report internet personalities and premium Snapchat members for collecting income and not declaring said income come tax time. This is due in part to the fact that the IRS offers whistle blowers up to 30% of any taxes collected based on information provided. While this might seem contained to one specific industry, the impact could bleed over into the crypto sphere very quickly, as many podcasts and personalities have encouraged “donations” or payments to their Patreon. I have had a few individuals ask me about the tax treatment of those monies, and the conversation is always the same, that money is income. Many people insist on the money being treated as a donation or a gift, donations are only truly donations when they are given to legitimate (501(c) 3s) charities.

When you start digging into the code, it become apparent that the activity of creating content and receiving payment is indeed taxable.  The code is as follows:

26 US Code §61 (a)General definition

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1)Compensation for services, including fees, commissions, fringe benefits, and similar items;

(2)Gross income derived from business;

So bearing this in mind the argument that people “gifting” you tokens or fiat crumbles pretty quickly. The IRS has generally held the concept that gifts are generally between 2 parties that knew each other well (think family) and that a gift is given without an expectation for service or consumable entertainment as you would receive from podcasts or influencers on social media.

What you should do if you have this income and have not claimed it before?

Amend the appropriate years to include this income, generally speaking you will file this on your Schedule C of the 1040 return. You will want to also include any expenses you have such as cameras, mileage, computers, and other electronics to reduce the net amount of income subject to tax. If you have questions on whether or not an item is deductible, feel free to contact us. There are plenty of options to legally reduce your taxable income and having a qualified tax professional can save you a significant amount of money in the long run. If you are creating content full time and are making more than $60,000 net income, it may be worthwhile for you to create an LLC and elect S-corp status as you can save on self-employment taxes.  

Why this is so critical for Crypto Specifically?

As we have written about before, the IRS is stepping up enforcement on cryptocurrency. When you post a wallet address to donate BTC or other tokens to, you are giving the IRS a paper trail to follow when it comes to your crypto. With individuals turning in taxpayers with minor evidence, this is going to be a juicy target for the IRS, since the accounts will be connected to videos or photos of you and most cryptocurrencies are public ledgers that are easy enough to track. When influencers are paid in tokens for promoting projects or receive tokens from their fans this will need to be recorded as gross income and reported. Here is a good primer on what type of tax is applied to which type of traction dealing with crypto. 

While 4chan is targeting a specific industry, it is not too far fetched to believe that competing maximalists would use the IRS reporting tools to go after competing thinkers and projects in the space. Although crypto got its start in An-Cap circles, the recent hash war has shown us that individuals are willing to go to great lengths to punish the “other side” in the same space.

The best defense in this situation is to be compliant from the start. Being above board with your income will make defending any claims by detractors easier to fend off. With careful planning and intentionality you can reduce your taxable income through harvesting appropriate expenses.

As always if you have questions feel free to contact us.

Andrew KernoskyComment