If you’re involved in cryptocurrency or staking digital assets, you’ve probably wondered how your rewards are taxed. A recent IRS ruling clarified an important detail: rewards you receive from staking or other digital asset activities are considered taxable income in the year they’re credited to your account, even if your account gets frozen later.
The IRS has made it clear that for tax purposes, rewards from digital asset activities like staking are treated as income as soon as they are credited to your account. This holds true even if you can’t access the rewards right away due to something like your account being frozen.
In one example, a taxpayer had cryptocurrency rewards credited to their account from staking activities. Later, the platform where their assets were held filed for bankruptcy and froze their account. Despite not being able to access or move the assets, the IRS ruled that the rewards still needed to be reported as taxable income for that year, simply because they had been credited to the taxpayer’s account and were under their control.
Understanding how and when to report digital asset rewards is essential for staying compliant with the IRS. This clarification ensures that rewards from activities like staking are taxed in the year they’re credited, which might be different from when you can access or use them. So, if you’re involved in staking or other digital asset activities, it’s crucial to know when your rewards are considered taxable income.
If you have any questions or need help navigating this, feel free to reach out to Beaird Harris for more details on how this applies to your situation.
Adapted from article by Matthew Geiszler, Ph.D., and John McKinley, CPA, CGMA, J.D., LL.M., Journal of Accountancy
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