For the US residents, reporting HYIP income in taxes is a real issue. Exactly how to report the HYIP income is an open ended question and there are is no definite answer to it. Some people do not report their HYIP incomes thinking it will send up red flags for audit. But it is a safe practice to report income. How to report an HYIP, however, is the real question that needs some discussion and thought. It is not prudent to report HYIP income as HYIP income unless you are sure that it is US. Securities and Exchange Commission (SEC) approved. If it is approved, then it is a normal investment and not an HYIP. HYIP income can be reported as Self Employment, gambling, gold investments etc.
The taxable income for one tax year is what coming out of e-gold/e-bullion/Liberty Reserve or similar accounts minus what you put in them. If you did not have any profit for one year, then it is possible to claim loss. It is important to remember to deduct all other fees both ways such as bank wire charges, e-bullion/e-gold charges as the cost of income.
Some people report HYIP earning as capital gain on investments just because they can offset their winnings against losses in the 1040 form, while others report it as gambling income. If the income is big, then forming an LLC might be the way to go.
Just keep in mind that is not a financial advice and I am seeking for answers myself. It is just the information I gathered from forums and discussions. I found it helpful, may be you will find it helpful too. Please leave a comment if you have anything to add. Constructive criticism or pointing out mistakes always helps. It might be a good idea to discuss these matters with a certified public accountant.
(Pictures taken from: www.whittiertrust.com and www.cpashah.com)
