It looks like this post is about taxes. Tax laws vary between countries, so you may get more helpful replies if you specify the place you are asking about.
Please note that promoting tax evasion violates Rule 4. This is a site wide rule and a subreddit rule. Do not endorse, suggest, advocate, instruct others, or ask for help with tax evasion. Do not be coy and sarcastically recommend against it or suggest using a privacy coin in response to an IRS inquiry.
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tldr; A bipartisan group of U.S. lawmakers has urged the IRS to revise its 2023 guidance on cryptocurrency staking rewards to prevent double taxation. Currently, staking rewards are taxed when received and again upon sale, leading to criticism. The lawmakers propose taxing rewards only at the time of sale to reflect actual economic gain. They also seek clarification on potential administrative barriers to updating the guidance before 2026. This initiative aims to support the U.S.'s position as a leader in the crypto industry and ensure fair taxation policies.
*This summary is auto generated by a bot and not meant to replace reading the original article. As always, DYOR.
This is the same as any other received interest anywhere. Its not double taxation on the same value. It's tax on new income (staking rewards) and tax on capital gains. Those are two entirely different things.
Incorrect. This is referring to staking or mining at the protocol level, not "staking" by depositing crypto into a 3rd party interest-bearing account.
It would be like if you were taxed when you unearthed a gold nugget, as opposed to only getting taxed after you sell it. Or getting taxed when you harvest your crop instead of when you sell your crop.
If I earn $100 in staking rewards at a $100 cost basis (when the reward was earned), I now owe regular income tax on that $100.
If that reward goes up in value to $200, and I sell it, I now owe either regular income tax OR a capital gain tax.
This isn't problematic when the price is going up, because the tax implication wont change, your taxes owed on this example will be the same no matter how it's taxed.
The problem is when the price of the reward goes down. Let's say I earn that $100 reward and now owe regular income tax on that reward. If the price goes down to say $50, because of the cost basis, my tax rate is now effectively doubled, because I still owe that ordinary income tax on the initial reward and cost basis.
The current tax code amplifies loses if the price moves down.
Staking rewards in the from of cryptocurrency should not be treated like interest income. It should be taxed when the reward is sold.
We are being taxed when we unearth the gold nugget and when we sell it.
Your math/rationale is correct, but the entire premise is what is wrong.
"If I earn $100 in staking rewards at a $100 cost basis (when the reward was earned), I now owe regular income tax on that $100."
The bolded portion is what is in dispute.
What tax do gold prospectors pay before they sell the gold nugget? What tax does the farmer pay after he harvests his wheat but before he takes it to the market? What tax does the carpenter pay after he constructs a chair but before he sells it to a customer?
Dude, receiving crypto as a reward for staking is a tax event. And must be reported as regular income.
What is the dispute here? Every 1040 has a box asking:
At any time during 2024, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?
You pay taxes when you receive a staking reward, most commonly reported as regular income. You pay taxes when you sell that staking reward, most commonly reported as a capital gain, or if short term, regular income.
What tax do gold prospectors pay before they sell the gold nugget? What tax does the farmer pay after he harvests his wheat but before he takes it to the market? What tax does the carpenter pay after he constructs a chair but before he sells it to a customer?
None!
What tax does a staker pay when a staking reward is earned? Regular income tax according to their tax bracket. AND it is reported as income (if there is any) when it is sold.
I think we might be miscommunicating. I've paid taxes on staking reward for the past 4 years.
"Dude, receiving crypto as a reward for staking is a tax event."
Via a 3rd party service, like Nexo, yes. But staking (or mining) natively is not/shouldn't be. As proven when the IRS offered a refund to a Tezos staker in 2019:
You aren't "rewarded" when mining or staking (natively); you are in fact creating new property. In line with the prospecting, farming, and carpentry analogy used above. As such, you shouldn't pay taxes until the property is disposed.
The only possible miscommunication is if by "staking", you mean depositing your crypto with a 3rd party and receiving interest in return. If that's what you mean by "staking", then yes, we are referring to two different actions, and in that case, for the action you're describing, I agree with you. But that action is not what I'm talking about nor what the OP is referring to either.
This is the only way it makes any sense. Forcing people to sell some just to cover the tax is ridiculous. Especially since some cryptos can’t even easily be swapped into USD.
It doesn’t need to be mentioned in the article for it to be relevant to the discussion. The nature of crypto being excluded from traditional finance is what makes the requirement unreasonable.
To be clear, I’m not talking about staking rewards earned on a platform like Coinbase. I’m talking about on chain rewards.
yeah, i figured you were talking about on chain rewards, but those are pretty easily converted too with just some simple excel spreadsheets and the ability to look up pricing data based on day.
there isn't anything special here, people who are awarded private company stock have the same difficulties with pricing their awards.
so i guess i dont know what the issue is. if you want to advocate for tax reform, go for it, but it seems like you care more about the difficulty of paying taxes? but there are tools for this...
i'm honestly not sure what you mean by crypto being excluded from traditional finance means; that is incredibly vague
Let me give you a more specific example. With the de-platforming of Binance for many US users, TRON was not available on any exchanges that served these customers for a long time. So although you could manage your wallet in self-custody, stake, receive rewards, etc., there was no safe way to migrate that value back to USD which could be withdrawn to a bank account. There’s probably some obscure bridge method but not safe imo. It was essentially excluded from the financial system, which I would argue means it has no value and should be exempt from taxes, until a regulated exchange services customers in your jurisdiction making it recognized.
i mean, that's just the risk you take when you play with crypto.
stocks can also get delisted and have no liquidity except on the private market. you can continue to gain stock in these companies and it makes reporting it incredibly difficult.
staking ignored - the same same thing happens even within crypto where coins get delisted and there is no liquidity to exit except on foreign exchanges that you have no access to.
its just the price of playing this game; its also why a lot of people just use accountants. if you want to be your own bank, you gotta do the shit they do for you such as reporting your income. this is a small, but overlooked value that banks provide
everyone's taxes would be a lot easier if they didnt have to report income (staking or stock awards) at all, but they'd also be a lot easier if they didn't have to report gains too. they'd be really easy if we just didnt have to report any income at all!
Does this mean staking rewards would not count as income at all but would rather have a cost basis of $0 when it comes time to sell? All proceeds would fall in the long / short term capital gains / losses category?
It looks like this post is about taxes. Tax laws vary between countries, so you may get more helpful replies if you specify the place you are asking about.
Please note that promoting tax evasion violates Rule 4. This is a site wide rule and a subreddit rule. Do not endorse, suggest, advocate, instruct others, or ask for help with tax evasion. Do not be coy and sarcastically recommend against it or suggest using a privacy coin in response to an IRS inquiry.
Note: Tax discussion is allowed as long as the above rules are not violated.
Consider visiting r/CryptoTax for your tax inquiries.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
tldr; A bipartisan group of U.S. lawmakers has urged the IRS to revise its 2023 guidance on cryptocurrency staking rewards to prevent double taxation. Currently, staking rewards are taxed when received and again upon sale, leading to criticism. The lawmakers propose taxing rewards only at the time of sale to reflect actual economic gain. They also seek clarification on potential administrative barriers to updating the guidance before 2026. This initiative aims to support the U.S.'s position as a leader in the crypto industry and ensure fair taxation policies.
*This summary is auto generated by a bot and not meant to replace reading the original article. As always, DYOR.
How's the Clarity Act coming along?
This is the same as any other received interest anywhere. Its not double taxation on the same value. It's tax on new income (staking rewards) and tax on capital gains. Those are two entirely different things.
Incorrect. This is referring to staking or mining at the protocol level, not "staking" by depositing crypto into a 3rd party interest-bearing account.
It would be like if you were taxed when you unearthed a gold nugget, as opposed to only getting taxed after you sell it. Or getting taxed when you harvest your crop instead of when you sell your crop.
Are you sure?
If I earn $100 in staking rewards at a $100 cost basis (when the reward was earned), I now owe regular income tax on that $100.
If that reward goes up in value to $200, and I sell it, I now owe either regular income tax OR a capital gain tax.
This isn't problematic when the price is going up, because the tax implication wont change, your taxes owed on this example will be the same no matter how it's taxed.
The problem is when the price of the reward goes down. Let's say I earn that $100 reward and now owe regular income tax on that reward. If the price goes down to say $50, because of the cost basis, my tax rate is now effectively doubled, because I still owe that ordinary income tax on the initial reward and cost basis.
The current tax code amplifies loses if the price moves down.
Staking rewards in the from of cryptocurrency should not be treated like interest income. It should be taxed when the reward is sold.
We are being taxed when we unearth the gold nugget and when we sell it.
Your math/rationale is correct, but the entire premise is what is wrong.
"If I earn $100 in staking rewards at a $100 cost basis (when the reward was earned), I now owe regular income tax on that $100."
The bolded portion is what is in dispute.
What tax do gold prospectors pay before they sell the gold nugget? What tax does the farmer pay after he harvests his wheat but before he takes it to the market? What tax does the carpenter pay after he constructs a chair but before he sells it to a customer?
Dude, receiving crypto as a reward for staking is a tax event. And must be reported as regular income.
What is the dispute here? Every 1040 has a box asking:
You pay taxes when you receive a staking reward, most commonly reported as regular income. You pay taxes when you sell that staking reward, most commonly reported as a capital gain, or if short term, regular income.
None!
What tax does a staker pay when a staking reward is earned? Regular income tax according to their tax bracket. AND it is reported as income (if there is any) when it is sold.
I think we might be miscommunicating. I've paid taxes on staking reward for the past 4 years.
"Dude, receiving crypto as a reward for staking is a tax event."
Via a 3rd party service, like Nexo, yes. But staking (or mining) natively is not/shouldn't be. As proven when the IRS offered a refund to a Tezos staker in 2019:
https://law.justia.com/cases/federal/appellate-courts/ca6/22-6023/22-6023-2023-08-18.html
https://cointelegraph.com/news/irs-sued-over-crypto-staking-tax-policy-josh-jarrett
https://www.taxnotes.com/research/federal/court-documents/court-petitions-and-briefs/couple-files-second-suit-seeking-crypto-staking-tax-refund/7m6b5
You aren't "rewarded" when mining or staking (natively); you are in fact creating new property. In line with the prospecting, farming, and carpentry analogy used above. As such, you shouldn't pay taxes until the property is disposed.
The only possible miscommunication is if by "staking", you mean depositing your crypto with a 3rd party and receiving interest in return. If that's what you mean by "staking", then yes, we are referring to two different actions, and in that case, for the action you're describing, I agree with you. But that action is not what I'm talking about nor what the OP is referring to either.
This is how it looks to me too. It's a pain but it's not a double taxation. It's just paying tax at two different points in time instead of one.
This is not double taxation lol.
this would be huge for adoption. staking rewards taxed twice is ridiculous. good to see lawmakers pushing for change
This is the only way it makes any sense. Forcing people to sell some just to cover the tax is ridiculous. Especially since some cryptos can’t even easily be swapped into USD.
This is literally how stock awards work in the USA... you are taxed on award and again on the gain
Stock awards are easily convertible to USD. That’s the biggest difference.
there is no difference, its a stock token vs a staked token
you take the time at which it was awarded, convert it to USD, that is your income. your company does this for you typically, but it is the same
also, the difficulty of conversion isn't at all what the article is talking about
It doesn’t need to be mentioned in the article for it to be relevant to the discussion. The nature of crypto being excluded from traditional finance is what makes the requirement unreasonable.
To be clear, I’m not talking about staking rewards earned on a platform like Coinbase. I’m talking about on chain rewards.
yeah, i figured you were talking about on chain rewards, but those are pretty easily converted too with just some simple excel spreadsheets and the ability to look up pricing data based on day.
there are also tools to do this for you like https://ethstaker.tax/
there isn't anything special here, people who are awarded private company stock have the same difficulties with pricing their awards.
so i guess i dont know what the issue is. if you want to advocate for tax reform, go for it, but it seems like you care more about the difficulty of paying taxes? but there are tools for this...
i'm honestly not sure what you mean by crypto being excluded from traditional finance means; that is incredibly vague
It’s not about calculating the amount.
Let me give you a more specific example. With the de-platforming of Binance for many US users, TRON was not available on any exchanges that served these customers for a long time. So although you could manage your wallet in self-custody, stake, receive rewards, etc., there was no safe way to migrate that value back to USD which could be withdrawn to a bank account. There’s probably some obscure bridge method but not safe imo. It was essentially excluded from the financial system, which I would argue means it has no value and should be exempt from taxes, until a regulated exchange services customers in your jurisdiction making it recognized.
i mean, that's just the risk you take when you play with crypto.
stocks can also get delisted and have no liquidity except on the private market. you can continue to gain stock in these companies and it makes reporting it incredibly difficult.
staking ignored - the same same thing happens even within crypto where coins get delisted and there is no liquidity to exit except on foreign exchanges that you have no access to.
its just the price of playing this game; its also why a lot of people just use accountants. if you want to be your own bank, you gotta do the shit they do for you such as reporting your income. this is a small, but overlooked value that banks provide
everyone's taxes would be a lot easier if they didnt have to report income (staking or stock awards) at all, but they'd also be a lot easier if they didn't have to report gains too. they'd be really easy if we just didnt have to report any income at all!
Does this mean staking rewards would not count as income at all but would rather have a cost basis of $0 when it comes time to sell? All proceeds would fall in the long / short term capital gains / losses category?
[deleted]
Oooo. You’re so edgy
End double and start triple taxing it. Trash waste of energy