Don't Overlook Tax on Crypto Staking Rewards: Kiplinger Tax Letter
The IRS has issued guidance on crypto staking rewards, but broker reporting on digital asset sales won't start until 2025.
Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…
A man asking a court to rule on the taxation of staking rewards got bad news. A federal appeals court tosses his case. He filed a refund claim alleging that token rewards he got from staking cryptocurrency are created property that is not taxed on receipt but on disposition. The IRS first disallowed his refund claim. But after he filed a lawsuit, seeking a return of his money, the IRS sent him a refund check.
Last year, a trial court dismissed the case without ruling on the merits. The Sixth Circuit Court of Appeals has now affirmed the lower court’s decision. The man filed a refund suit, and the IRS later paid him in full. That makes the case moot. It doesn’t matter that the taxpayer didn’t cash the refund check (Jarrett, 6th Cir.).
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Meanwhile, while the above court case was going on, the IRS issued guidance on the taxation of staking rewards in July. When one stakes crypto native to a proof-of-stake blockchain and receives additional crypto units or tokens as validation rewards, the fair market value of those token awards is gross income in the year the taxpayer has dominion and control over the tokens (Rev. Rul. 2023-14).
In other cryptocurrency tax news, brokers get guidance on how to comply with reporting rules on digital assets. A 2021 law requires brokers to report the sales price, tax basis and other information on digital asset trades. The rules were scheduled to first take effect for digital assets acquired on or after Jan. 1, 2023, but the IRS previously delayed the reporting obligation. Proposed regulations issued by the IRS address a multitude of topics:
- Reportable digital assets
- Brokers required to report under the rules (the definition of broker for this purpose is broad)
- Types of sales subject to reporting
- Information to be reported to the IRS and the taxpayer
- Gross proceeds in digital asset transactions
- And much more
Brokers will use the new IRS Form 1099-DA to report this information. Brokers have a couple of years to prepare for this. Under the proposed regulations, brokers must report gross proceeds from digital asset sales taking place in 2025 or later. That means you won’t receive a 1099-DA from your broker until early 2026. Reporting of tax basis and character of gain begins with 1099-DAs sent out in 2027.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to kiplinger.com and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.
-
Five Reasons to Take Social Security Early (and Four Reasons to Wait)
Are there good reasons to take Social Security early? While many experts say it's best to wait until full retirement age to claim benefits, here are some reasons to start early.
By Kathryn Pomroy Published
-
A Letter of Wishes: No Legal Power But Powerful Nonetheless
A letter of wishes lets you explain, in plain language, your intent behind your estate documents, potentially heading off any misunderstandings or disputes.
By Steve Lockshin Published
-
Knowing How to Compute Tax Basis in Your Home Can Save You Money
The Tax Letter Whether you're selling or buying a home, you'll want to know how to compute tax basis. It could save you on taxes when you sell.
By Joy Taylor Published
-
IRS Warning: Beware of Smishing and 'Helper' Tax Scams
Scams Tax season is a time to look out for email and text message scams.
By Kelley R. Taylor Last updated
-
What's Happening With the Employee Retention Credit and the IRS?
Tax Credits Due to fraud, the ERC has received much attention lately from the IRS and Congress.
By Kelley R. Taylor Last updated
-
Should You Let the IRS Do Your Taxes?
Tax Filing The new IRS Direct File program is now open to more taxpayers.
By Kelley R. Taylor Last updated
-
A Spotlight on the Pacific States: The Kiplinger Letter
The Kiplinger Letter Most Pacific states are seeing good job growth in multiple sectors including tourism, hospitality, and construction.
By David Payne Published
-
The Robots Are Coming... But Not For a While
The Kiplinger Letter There’s excitement in the tech sector over the potential of humanoid robots, but widespread adoption is likely to be years away.
By John Miley Published
-
Farmers Face Another Tough Year As Costs Continue to Climb: The Kiplinger Letter
The Kiplinger Letter Farm income is expected to decline for a second year, while costs continue to up-end farm profitability.
By Matthew Housiaux Published
-
Tax Tips for Transferring Excess 529 Plan Funds to Roth IRAs: The Tax Letter
The Tax Letter 529 plans can help blunt the cost of paying for college. But if you want to use leftover funds there are some tax tips to bear in mind.
By Joy Taylor Published