In the USA at least you get taxed on the value of the coins you earn through staking at the moment you earn them. If the price of ADA is .10 and you earn 10 of them you pay taxes on income of $1.00 If and when you convert them to fiat you pay additional capital gains on any gain in value or get a deduction if they loose value from the day you received them.
Regarding Australian Crypto tax law heads up! See link below:
Thanks for the link
Nothing too surprising though. I donāt plan on dodging any taxes when using an exchange to exit to fiat, which is what the article suggests they are trying to prevent.
Maybe I am skeptic about the US, but they introduced Bitcoin futures to tame Bitcoinā¦
They will come up with something to tame POS coins as well.
Either by taxes or other means (wyoming might be an exemption though)
Completely agree
So Iām still on this crypto tax thing,and if someone can add more on to the IRS laws on the books feel free to do so.
Scenario-You buy 1000 ADA@.10 in 2018ā¦You then begin to stake it all in 2020ā¦
Throughout the year you earn 50 ADA rewards.You decide to sell 100 ADA@1.00 at the tail end of 2020.
(.90 capital gain per ADAx100)=$90 in Long term capital gains for the 2020 tax filing year.We could also subtract fees etcā¦But for the simplicity of the exampleā¦
Now hereās the gray area.If crypto follows the First in First out ruleā¦Your technically selling your 2018 coinsā¦NOT any of your 2020 rewards coins.Heres the hang up.If they are saying āpayā the taxes for the rewards coins,They would in a sense turn into āRoth coinsāā¦I paid the taxes up front, and did not sell themā¦ now they grow tax and penalty free.
Or if they consider the rewards coins reinvested returns,your cost basis is then established at the time you received the rewards.
Any thoughts?
Please no āthey shouldā or āwhat they need to doāā¦Were all going to be running into this for our 2020 tax filing year and donāt quite have my mind wrapped around it.
In that scenario you would owe income tax on the 50 Ada AND capital gains on the 100 you sold. I believe 1st in 1st out applies but not entirely sure. If you sell the 50 rewards Ada from your reward wallet you would pay capital gains on any appreciation on them between when you earned them and when you sold them. I am not an accountant however.
This is where the confusion sets inā¦If it is in fact FIFOā¦Then the 100 you sold in 2020 would be the part of the 1000 you bought in 2018.
I did my taxes through CryptoTrader tax and everything I was told and how my capital gain/loss was formed was on a FIFO cost basis calculation.
You sold the entire amount of 1050 ADA this would then applyā¦The cost basis of the 1000 and a separate cost basis for the 50??
That is my understanding also. Just make sure you pay income tax on the staking rewards based on the price of Ada when you earn them.
This is what makes no sense.The day I receive them is my cost basis.I have not sold them nor are they a realized gain or loss.Essentially re-investing your dividends.If thatās the case of me paying for the reward the the day they are receivedā¦They are then Roth coins. Paying the taxes up front and then are allowed to appreciate tax and penalty free when I sell.If FIFO is the caseā¦When your selling, your technically selling your FIRST acquired ADAā¦It would take years (if desired)to finally get to the cost basis of your staking reward ADA.
So to my knowledge when you receive your staking rewards they are not āRothā like (for those in different parts of the world, in the States a Roth IRA is a retirement vehicle that lets you pay taxes up front and cash them out tax free at retirement). Staking rewards are considered regular income like a paycheck or interest from money in a savings account. So you need to pay income tax on the rewards based on their value in USD when you received them. If you get rewards that are worth $100.00 at the time you receive them you owe income tax on $100.00. If you later cash those same tokens out you pay additional capital gains on the amount they further increased. Or if they decrease and you cash them out you can take it as a loss like any capital gain. At least that is my current understanding.
Here is an article on Mining but I believe that Staking is equivalent as far as taxes go:
Also here is a somewhat depressing article:
Hopefully laws are changed to make rewards more like a dividend as far as taxes go.
Thanks for getting this topic breathing again.
What would help in this task is a spreadsheet that records rewards received at the end of each epoch (date and time) so that we had a fighting chance of being able to match the price of ADA at that time and calculate our actual income. Iām sure someone could conjure up a nifty app that does this automatically.
Iām pretty underwhelmed by Daedalusā export .csv file of rewards function which only shows the current amount, not a daily record of the rewards accruing over time. Anyone else feel that way? I suppose I should leave some feedback to that effect.
Cheers,
D
Thanks for the input,Letās keep this alive.I have contacted a crypto tax company,and from what I understand is that staking rewards (in this case)are considered āordinary incomeā and interest earned on that is also considered income.With that being said,here comes the tax saving strategy issueā¦It is wise to work your filing in FIFO, LIFO, or HIFO?
If itās FIFOā¦You pay the normal taxed āincomeā of your stakeā¦and if you sell you also in turn might end up owing capital gains to boot depending on how long you have held your original holdings and what tax brackets you fall under for the filing yearā¦I am in no way a tax expert and if Iām missing something jump in! .letās get some tax efficient ideas going here so weāre not taking a rip in the pants.
Definitely curious see what you find out. I will keep this thread updated with new info as I get it as well.
Letās crowdsource this topic and see what we can come up with, and find the best tax efficient approach .I talked to my previous tax strategist,and we ended up more confused then when we started.I will see if I can hunt down a crypto specific tax strategist.The bottom line here is that the IRS is already making provisions and adding questions to their tax forms specifically for Crypto,and they will have the screws cranked up for profitable Crypto owners.Best to be prepared,and locked in on the most tax efficient strategy before we go into another bull run.
Iāve seen a couple of videos on YouTube. Iāll try and find stuff tonight.
Here is more info in regards to FIFO,LIFO,HIFOā¦
Now for the most efficient strategyā¦
Folks this is a BIG deal and will soon be a tax situation were all going to be in when we are all staked(hopefully mainnet) and getting rewards.
āThe IRS isnāt explicitly clear which costing method you were supposed to use when calculating your cryptocurrency capital gains and losses for your tax reporting. Because of this uncertainty, the majority of traders in the past used FIFO (first-in first-out) as this was deemed to be the most conservative approach. The new 2019 guidance officially declares that specific identification methods like LIFO (last-in first-out) or HIFO (highest-in first-out) can be used provided that you can specifically identify particular units of cryptocurrency. This is a very good thing for cryptocurrency traders, and it provides them with a great tax saving opportunity.ā
So how does this all play out?
FIFO (First in First Out)ā¦ALL staked rewards are treated as āordinary incomeā xx number of days staking rewards are āpaidāwith a big basket of cost basis for each day/value of the asset.Tax trigger number 1
Now you want to sell XXXX ADA to cover the āincomeā tax bill for the year and pull a little fiat to bootā¦Tax trigger number 2ā¦short/long term capital gains at the cost basis of your FIRST ADA purchase possibly at a HUGE capital gain margin especially if your a long time Hodler.
LIFO (Last in First out)
LIFO works exactly opposite of FIFO. Instead of selling off the first coins you acquired, you sell the last coins that came in (i.e. the most recent coins you acquired).
Again your staking āincomeā for the year comes in,and the basket of cost basis for each time your paid.Tax trigger number 1.
Now again you want to sell to cover the ā incomeātax bill and have a little fiat to boot.
Tax trigger number 2
UNCERTIAN With LIFO these are now considered short term capital gainsā¦BUT your cost basis is going to be MUCH closer to the market prices/structure of that year.
HIFO(Higest in First Out)
āHighest-in first-out (HIFO) works exactly how it sounds. You sell the coins with the highest cost basis (original purchase price) first.
HIFO can be used as a ātax minimizationā method as it will lead to the lowest capital gains and the largest capital losses, best of both worlds. Keep in mind, net capital losses can be used to offset other income up to $3,000 dollars (the remaining will be carried forward to future tax years).ā
Could be applied in said examples above only your HIGHEST cost basis āincomeā is the first out.
āItās important to note that the IRS likes to be retroactive when it issues guidance. If you used FIFO in previous years you may be able to reasonably go back and amend previous years tax returns using a different, specific identification costing method.ā
So basically if you have been filing using the FIFO method you CAN go back and change your filing from previous years.Thats great,but this could be a very LARGE headache.I just see the FIFO method as the WORST way to develop income and still hold your original stake for many years to come.
Hereās the questionā¦
What is the most efficient tax strategyš¤
When ADA is going UPā¦
When ADA is going DOWNā¦
What tax bracket you reside inā¦
Long term vs Short termā¦
Paying for the rewards and HODL vs Using the rewards to cover the āincomeā
Ok Iām done for the dayš¤¦āāļø
ALSO! As this topic grows and things become less confusing more concrete/accurate,I will remove any and all a misleading/false/ confusing information I have posted.I want this to be as accurate and informative as possible .I would hope that others will do the same.
Ok NOW Iām done for the dayā:man_facepalming: