Staking or holding crypto is a popular way for investors to earn passive income while supporting the security and decentralization of certain blockchain networks. But with any investment, it’s important to understand the tax implications of your actions. In this post, we’ll take a closer look at the tax implications of staking or holding crypto and provide tips on properly reporting it on your taxes.
First, it’s important to understand that staking and holding crypto are treated differently for tax purposes. Staking refers to holding and actively participating in the validation of transactions on a blockchain network to earn rewards, typically in the form of staked cryptocurrency. Holding, on the other hand, refers to simply owning and holding onto crypto as an investment.
Regarding staking, the rewards earned are considered taxable income and must be reported on your taxes. These rewards are typically subject to ordinary income tax rates, which can be as high as 37% for some taxpayers. It’s important to keep track of the fair market value of the rewards at the time they are received, as this will determine the amount of income that must be reported.
When it comes to holding crypto, the tax implications are more complex. The IRS considers crypto a form of property rather than a currency. This means that any gains or losses from buying, selling, or trading crypto are subject to capital gains tax. Suppose you hold crypto for less than a year before selling or trading it. In that case, any gains are considered short-term and are subject to your ordinary income tax rate. If you hold crypto for more than a year before selling or trading it, any gains are considered long-term and are subject to a lower capital gains tax rate. It’s important to keep track of your purchase and sale prices and the fair market value of any crypto held for more than a year to calculate your capital gains or losses.
It’s also important to note that if you use crypto for purchases or payments, you may be subject to capital gains tax on the difference between the fair market value of the crypto at the time of purchase or payment and the purchase or payment amount. Additionally, receiving crypto as compensation is considered taxable income and must be reported on your taxes.
When it comes to staking and holding crypto, it’s important to keep accurate records and consult with a tax professional to ensure you are properly reporting and paying your taxes. With the ever-evolving nature of crypto and tax laws, it’s important to stay informed and up-to-date on the latest developments.
Please note that this blog post is for general tax information only and should not be taken as specific advice for your business. Please consult with a tax advisor for specific details. Contact The Crypto Accounting for professional crypto tax advice and services at https://www.thecryptoaccountant.io/hire-crypto-accountant/.