I haven’t watched this yet but will soon.
germany same problem. FIFO
my solution, i move my inital ada away.
sell the rest, which is reward.
move ada back
Transaction fees are used to pay stake rewards.
So each ADA I earned staking during 2021 was taxed by the US government at the market rate the moment each ADA was created as the epochs ended.
Now the tax bill is due so I have to sell ADA at the now much lower market rate in order to pay my taxes on the staking rewards.
So I am selling a lot more ADA now to cover the tax bill than I would have if I had sold off some of the ADA at the end of each epoch. If the market had really plunged then it seems the government could have forced me to sell all my ADA to cover the taxes on staking rewards for the year.
As protection in the future, it seems a good tax strategy might be to sell some ADA at the end of each epoch to cover the taxes on the rewards. This way I will not have to worry about selling a lot of ADA to pay taxes on staking rewards should the market fall at tax time.
Since I am selling at the same moment I receive the ADA, the market value is the same and there is no capital gains tax. Right? Well I don’t know.
Even if I do sell some of my earned ADA at the end of each epoch, I am not sure if the government will evaluate the sale as LIFO. For all I know, the government may evaluate the sale at the end of each epoch as FIFO. In that case they would say that the ADA I sold was the first ADA I purchased many years ago and that I had not yet sold the ADA earned this year for staking. If they take that position then I not only pay taxes on the staking rewards but also on capital gains for the ADA bought several years ago.
Has the US government provided any clarity since the last post in this forum?
Thanks
P.S
I am not really selling any ADA to cover my taxes. My investment strategy is to hold coins built on the very best technology because these coins will offer the most utility and will likely be the most desirable as people learn what can be done with the protocol. ADA is the clear winner so of course I will not sell ADA to pay my taxes. I will however put USD aside every epoch to match the dollar value of the taxes I expect to pay on the ADA earned. This way I won’t be caught short at tax time. Still the question of whether or not the US government will recognize a LIFO trade is important. We need clarity.
P.P.S
While we still need clarity on FIFO, LIFO, HIFO, it seems taxation of staking rewards may move from moment of creation to moment of spending. That would be much more reasonable.
P.P.PS
This video talks about tax reporting software that allows you to report your taxes using any of the following FIFO, LIFO, HIFO.
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