**TAX implications for staking**

Does IOHK have plan to address the serious burden it puts onto its stake holders?

This should be considered heavily during the creation of an incentives scheme, but no one is talking about it.

Tax Implications with staking. The hidden devil.

The problem: At the end of every epic (5 days), rewards are distributed to its stake holders. Which means, every person who delegates stake to the network will receive a taxable distribution in the form of ADA. This reward will have to be tracked, reported, and taxed.

Each person has to figure out what the USD conversion of the ADA price is every 5 days just to calculate the distribution they recieved in USD. Then repeat and track this process for the entire tax year (approx 72 epics per year). Currently, there is no scientifically proven, credible standard of a website to find this information out (read: Coinbase and Binance are not reliable or open source). The price wildly fluctuates every day. This undue burden and headache will prevent mass adoption. It is a tax accountants worse nightmare. Not just for federal, but also for state taxes.

In the USA, the federal tax code does NOT allow for an average of distributions received over the course of the year. A person can not combine the total of ADA received for one year with the average yearly price to find out their tax liabilities. Each ADA distribution has to be accounted for individually.

On average, there is will be approximately 72 ADA taxable distributions per year. With the current proposed incentive scheme, even if your stake remains the same, your rewards will vary and the price will definitely be different at the end of every epic.

This would prevent anyone that does not have a sizable amount of stake from contributing to the security of the network. I know for a fact, that my Mom, Dad, Brother and Sister; each of who have less than 50,000 ADA, will not delegate till this is resolved. I am going out on a limb too say there may be others.

I am curious to find out, how people who day trade deal with this?

I am confident that the bright minds of IOHK can code a solution.

If you like my question, head over to the AMA quesion contest and give it a :heart:

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Not trying to be off-putting but are you familiar with excel? It will do the work for you and honestly in my opinion it would be a good problem to have to worry about in the first place.

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Yoroi extension already allows you to export your transaction history for your wallet. The export format is made to be easy to import into existing crypto tax software and we’re working to add different units of account (USD, Euro, etc.) to make this even easier in the future.

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It seems to me like building in a disbursement report facility that indicates the amount disbursed and the time it was disbursed and blockchain transaction IDs (with date-range filters) would basically address the issue.

Why would the general idea prevent someone with fewer than 50,000 ADA (or any #) from staking?

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That sounds like an excellent option. But it has to correlate with a price. Otherwise, the end user is left figuring it out on our own.

Most people in the USA get their taxes done by a professional. The professional will charge a whole lot more if he has to prepare and figure out 72 different tax distributions that my Mom or Dad didn’t track.

The default option will be, “Its not worth the headache or the cost to figure out.”

Would you agree?

I am not even sure if the standard e-file services, like H&R Block, have an option for this? Will I now be required to not take the standard deduction and have to itemize all my taxes?

I certainly can’t answer tax or tax-software related questions.

I would argue it’s not IOHK’s or “Cardano’s” responsibility to provide a price correlation mechanism to fiat. I would also note that the overall issue doesn’t strike me as any different than PoW mining and so I question whether it’s fair to claim that “IOHK is putting a tax burden on stake holders”. The miner is putting that on themselves. Governments put the burden on miners.

As for correlating to fiat, it seems to be a fine opportunity for a 3rd party to provide a website or API that ingests a bunch of timestamps to generate a corresponding report that lists the prices at checkbox-selected exchanges at those timestamps.

The question seems to me to be: “Is IOHK in any way working with (lobbying) governments to help clarify or make friendly Tax regulations in relation to cryptocurrency mining?”

Or again, “Considering regulatory compliance, will staking wallets somehow restrict participation from particular geographic/political regions?”

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Let’s be fair,

The goal of IOHK is to get as many people to delegate stake as possible. It is IOHKs’ responsibility to remove as many barriers to entry as possible. One HUGE barrier is TAX burden of it’s stake holders. If IOHK simply chooses not to create an easy UX/UI for its stake holders to use, then this will prevent the little guys from contributing to the network.

No one is asking IOHK to do my taxes. All the community needs is a tool to help them track.

The attitude of "let some other 3rd party right the code, does not align with IOHK’s mission statement.

Everyone on this forum has heard the saying “all you need is 1 ADA to stake” In reality, this is not currently practical.

Do you agree?

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So, the question is something like: What steps are IOHK taking to encourage tax laws that are friendly towards mainstream adoption of ADA staking and crypto-mining in general especially in light of the fact that the protocol benefits from many small stakeholders but at the same time tax laws in many important jurisdictions are unfavorably burdensome for small stakeholders?

You mentioned 3rd party software. Maybe H&R Block or TurboTax will integrate some of these features in and the first to do so will gain competitive advantage. If IOHK wants to provide a pricing correlation mechanism (inside their staking wallets) and integrated into their disbursement report capability, fine - that would be cool. I can see how doing something like this may be really helpful towards encouraging mainstream adoption, as would lobbying governments.

Realistically, I should be able to report a wallet address to the IRS and they should be able to do the whole calculation themselves. They could have a smart-contract that automatically calculates and withdraws my taxes, if they were savvy.

I still don’t see how IOHK is putting a tax burden on anyone, in bold, no less. It’s a larger ecosystem question. IOHK wants a level of participation that is made difficult by regulations. The desire to stake (be a miner) and the individual act of doing so (participating in the protocol) and government tax laws are what put on a tax burden.

@jeromeyers I think we have to agree to disagree. But I enjoyed this healthy debate. This is what this ecosystem is all about.

I think we can both agree that there is room for improvement in the area of Taxes.

@Cardano Community, what do you guys think?

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Hi @iamdrock & @jeromeyers, :wave:

Thanks for participating and posting your questions in our AMA Contest thread. It is very much appreciated.
Staking & taxes seems to be an interesting topic and discussion, however, we want to make sure to keep discussions separated from the AMA Contest thread. I have moved your discussion to this topic.

Thanks for understanding, and enjoy your time on our forums! :+1:

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@Katsumoto Understood. On the other hand, I was attempting to keep the discussion focused on coming up with a better form for the question - one with less accusatory overtones - since the internet is simply filled with that kind of languaging and I personally find it off-putting.

@SebastienGllmt Will this exporting of transaction history be added to the Daedalus wallet? I’m personally more of desktop user.

Continuing the discussion from TAX implications for staking:

Hi Katsumoto,

I noticed you moved the conversation over. However the redirect link is broken. When you click on the link from the orginal post, it displays an error. Please look into this. Thanks

Yoroi is a browser extension as well as a mobile app, I only use it on a laptop, via Brave.

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Pun intended, I excel at excel. :joy: However, I have not been able to create a spreadsheet that will pull a USD price of ADA when I receive my distribution. I would love to see a tutorial on this. I am sure the community would love it as well.

Wow. That is GREAT news! I think you may have converted this daedalus user over to Yoroi. Keep up the good work. I would love to see a youtube video of this if possible.

Daedalus will have an export feature too

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That is the coolest feature yet, thank you for sharing. I can see now that the future is bright!!! This makes my tax preparation way easier. :100::100:

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We already have a simple version for exporting in Yoroi. And we are already working in adding different currency to be displayed with transactions (usd, yen, yuan, etc).

We will even add the tax events when staking and exporting to excel. I’m a permanent resident in NY, so I’m aware of tax implications (Federal, State and even City) and we are addressing them.

I don’t know about the compatibility between different wallets, so I will strongly recommend to use Yoroi from the start if you care about exporting tax events in a simple way.

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