Staking Rewards Tax Guide
Learn how staking rewards are taxed under current IRS guidance, including timing of recognition and documentation requirements.
Overview
When you stake cryptocurrency, you're locking it up to support network operations and validate transactions. In return, you get staking rewards (more crypto).
According to current IRS guidance, staking rewards are taxed as ordinary income when you receive them. This guide covers the basics of how that works.
This is general information, not tax advice for your specific situation. If you need help with staking taxes, use the intake form.
Income Recognition
The IRS says staking rewards are taxable as ordinary income when you have control over them. That generally means:
- The rewards are received and credited to your account or wallet
- You have the ability to transfer, sell, or otherwise dispose of the rewards
- There are no substantial restrictions on your control of the rewards
You report income based on what the rewards were worth in dollars when you received them.
Fair Market Value Determination
Fair market value is what a willing buyer would pay a willing seller in an arm's-length transaction. Basically, it's the market price.
For actively traded tokens:
Use the price from a reputable exchange when you received the rewards. If there are multiple exchanges, pick one method and stick with it.
For thinly traded or unlisted tokens:
You'll need to figure out a reasonable valuation based on comparable transactions and market conditions. Keep good documentation of how you valued it.
When You Sell Staking Rewards
When you sell or trade your staking rewards later, you'll have a capital gain or loss:
Capital Gain/Loss = Sale Price - Cost Basis
Your cost basis is whatever you reported as income when you got the rewards. Whether it's short-term or long-term depends on how long you held them after receiving them.
So you get taxed twice: once as ordinary income when you receive the rewards, and again for capital gains (or loss) when you sell them.
Documentation Requirements
Maintain detailed records for all staking rewards:
- Date and time each reward was received
- Amount and type of cryptocurrency received
- Fair market value in U.S. dollars at time of receipt
- Source used to determine fair market value
- Wallet or account addresses
- Transaction IDs
- Date and details of any subsequent sales or exchanges
If you use staking services or pools, keep records of the terms and any fees they charge.
Reporting on Tax Return
Staking rewards must be reported on your tax return:
- Form 1040: Answer "Yes" to the digital asset question on the front of Form 1040
- Schedule 1, Line 8z: Report staking rewards as "Other Income" with a description such as "Staking Rewards"
- Schedule C: If staking is conducted as a business activity, report on Schedule C as business income
- Schedule D and Form 8949: Report any capital gains or losses from subsequent sales of staking rewards
Whether staking counts as a business or just passive income depends on your situation. If you're not sure, get professional advice. Arc & Ledger specializes in cryptocurrency tax reporting, including staking rewards classification and proper Schedule C or Schedule 1 reporting.
Frequently Asked Questions
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Related Services
Arc & Ledger provides professional assistance in these areas
Individual Tax Services
Professional handling of staking rewards and cryptocurrency income. We determine the proper classification and ensure accurate reporting on your tax return.
Business Tax & Compliance
If your staking activity qualifies as a business, we provide Schedule C preparation and help you maximize deductions while maintaining compliance.
Need Professional Assistance?
This guide provides general information only. For engagement-specific guidance, complete an intake form to determine if our services align with your requirements.