Taxes on ETH staking rewards

[ekstremista]

I will have to read more on this but I what I understand now is that staking is basically interest you earn from keeping your dollars in a bank so it is also income that should be subject to tax. The only question now is when it should be taxed? At the time you earned it in ETH or when it was converted to USD?

edit - Okay so it should reported as part of your taxable income at the time you earned the reward and not at the time you sold it. The IRS also clarifies that the valuation of the staking rewards is at the time of earning it.

This is different to the tax treatment of trading cryptocurrencies which is classified as capital assets and subject to capital gains tax.

Yes, which injects additional complications into the mix. Suppose you paid your tax (in cash) on the ETH reward you happened to receive. However, you don't sell the ETH reward for the time being.

If ETH rises and you sell, do you still pay tax on the gains?

If ETH falls and you sell, do you get to deduct the loss?

Another way to put it, are ETH staking rewards like positions in a regular IRA or a Roth IRA?

I'm not aware of IRS guidance on this, but it seems pretty basic and essential for next year's taxes.

[redsun114]

I don't know much about whether it's true or not but I want it to be true. Every sector in the US has taxes on it and I don't get why people in crypto want tax free earning. The governments have the complete right to impose taxes on each and everything they want because of the facilities they are giving you.As a citizen you are compelled to pay taxes.

The other side of the coin is that governments should provide security and insurance that whenever there will be a scam or something like that we have your back and we'll try to track the criminals behind that. In the past days a couple of blockchains owners were sentenced for some time and that's a positive sign too.

Why they want tax-free earnings? It's simple, that is because they want to enjoy all of their earnings. That's true what you said about almost everything in the US has a tax but on some other countries, it doesn't work like that, so people are not used to the taxation on cryptos if ever it will also be implemented on their country, plus most of them are already poor. This is one of the reasons on why they don't want to get taxed.

It's definitely fine if I'm being taxed when I use a service or a property of the government but I don't think cryptos or the platforms related to it are still their possessions. This is one of the reasons on why many are against the taxation in cryptos. Insurance and security are still possible even without the involvement of the government.

[Abiky]

That was one perfectly fine possibility (the one that arguably made more sense). Unfortunately, the IRS finally released the rules it decided to make up. According to these, you must pay tax at the "fair market value" of the rewards at the time you gain control of them (i.e., are able to sell).

In retrospect, this makes sense in terms for slowing down crypto adoption: If you stake, you're forced to go into cash at some point. No longer can you transact purely in crypto. In terms of maximizing the IRS's gains, it makes less sense, at least if you expect crypto to behave the same ways as since the beginning in 2009.

We can't stop people from selling their crypto to Fiat. After all, the majority wants to make money. Holding crypto without selling is something that only a true believer would do. If you don't sell, there's no reason for the government to collect taxes from you. However, you'll be tempted to sell when you need the money to buy things you can't spend your crypto on. That's when you need to pay your taxes.

I have no problem with crypto taxation as long as it's done fairly. At least, the US doesn't charge as much taxes as India does.