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Taxing Crypto Staking Awards

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With crypto trading becomes mainstream, its staking is becoming more
common. Staking describes the way that users stake their crypto to help validate
transactions in the blockchain and they get rewards in return.

The IRS hasn’t released specific guidance on how staking rewards should be taxed
but the IRS Notice 2014-21 addresses how the mining income should be taxed. Also
the IRS Revenue Ruling 2019-24 provides guidance on how “airdrop” of new crypto
currency is taxed. With interpretation of these prior rules, it is likely that the IRS will view staking rewards as ordinary income.

If you participate in staking for hobby, you will report the value of the rewards
earned as “other income”. If you run a mining operation as a business and stake, you
may have to report the earnings on a Schedule C and will be subject to self-
employment income.

When you dispose of the earned rewards, any gain or loss may be subject to capital
gains taxes. The tax rate depends on how long you have held the reward tokens.

For more information, please contact Dimov Associates at the contact below. We are more than happy to assist.

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