Staking has emerged as a popular way for cryptocurrency holders to earn rewards on assets without needing to sell. However, the tax treatment of staking rewards remains complex given regulatory uncertainty in many jurisdictions.
This article examines approaches to reporting staking income for tax purposes based on common practices observed among staking providers and investors.
The information herein is being provided to you for general informational purposes only. It is not intended to be, nor should it be relied upon as, tax, legal, business, or investment advice. Figment undertakes no obligation to update the information herein.
Taxability of Staking Rewards
In the absence of clear statutes, it is common practice to assume staking rewards are taxable income to mitigate liability. This preemptively reduces future administrative burdens if policies are formalized.
Classifying Staking Rewards
Staking income can be classified as “ordinary income” similar to interest or dividends. Otherwise it may fall under “capital gains” like currency appreciation. It has been common practice to treat rewards as ordinary income when taxable.
Tax Jurisdiction Considerations
Jurisdiction depends on factors like:
- Location of lawmakers
- Asset owner registration
- Private key storage
- Infrastructure location
- Personnel operating infrastructure
- Reporting Reward Timing
Claiming Staking Rewards
For networks where rewards must be claimed, timing of claims may impact tax reporting. Some report income when rewards are claimed, at least annually, providing a definitive total.
Conclusion
While staking tax policies remain uncertain, common practice is to assume rewards are taxable and classify them as income appropriately. Jurisdiction depends on multiple factors.
Regularly claiming rewards in some cases can ease reporting. Working closely with qualified tax professionals is also key to staying compliant while maximizing staking income.
