Staking, when and what should you pay the IRS?

As far as I know, most US citizens do not look forward to tax season. And rightly so. As they need to go over everything by themself or pay someone to do it, that has happened the last year. It is a system that I don't really get. But nonetheless, this post might help you somewhat when it comes to tax season next time.

When will the IRS want its share?

There has recently been a court ruling on this matter, a link to the ruling can be found below. And it tells you exactly when and what the IRS is looking to get.

The fair market value of the validation rewards received is included in the taxpayer's gross income in the taxable year in which the taxpayer gains dominion and control over the validation rewards

This is saying that you need to add your gains from staking at the moment you gain taxes to them. Meaning when you claim your reward you need to add the reward to your gross income. And you need to use the value that the coin or token had at the time you claimed it. This is also the case no matter where you stake your crypto, be it an exchange, centralized or decentralized, or through some other means be it a node or a third-party website.

This means that the best advice for you if you are looking to do as little work as possible, is to claim the staking reward as few times as possible. But that is not always what is best for you. Instead, I simply advise you to keep a record of when you claim what, how much you got, and what its price was at the time. Then simply store that with your other tax-related stuff.

I hope that you found this post helpful, even if it is rather short. =) Do you have any other crypto-related tax tips feel free to share them in the comment section below.

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Resources

1. https://www.irs.gov/pub/irs-drop/rr-23-14.pdf