The US Internal Revenue Service (IRS) has released new guidelines regarding the taxation of cryptocurrency rewards received by taxpayers who stake cryptocurrencies. The guidelines aim to provide clarity on whether taxpayers should include the value of these rewards in their gross income.
Many cryptocurrencies operate on blockchain technology, with specific consensus mechanisms in place to validate and add new transactions to the ledger. One such consensus mechanism is proof-of-stake, used by the likes of Cardano (ADA), and BNB Chain (BNB).
Ethereum (ETH) the second most popular public blockchain, switched from proof-of-work to proof-of-stake last year. Bitcoin (BTC), however, is a proof-of-work platform.
Rewards Value Determined by When You Take Control of Asset
In proof-of-stake, holders of a particular cryptocurrency actively participate in the validation process by staking their coins. Validators who successfully validate transactions and add blocks to the blockchain receive additional units of the native cryptocurrency as rewards. These “validation rewards” are newly created units of the cryptocurrency specific to that blockchain.
Learn more about how to earn with your cryptocurrency here.
However, according to the new guidelines, taxpayers will now have to include validation rewards as part of their gross income. Those reporting must record the “fair market value” for the cryptocurrencies.
According to the report, the IRS determines the fair market value by “the date and time the taxpayer gains dominion and control over the validation rewards.” In other words, your tax payable should reflect the market value of the assets when they hit your wallet.
However, the same is true if an exchange or other third-party service offers staking rewards. So for US taxpayers, keep an eye on when and how you receive your staking rewards. Otherwise, you may receive a nasty visit from the tax man.
For more information, please refer to the official Internal Revenue Service website, or refer to our latest US tax guide.
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