What Is Proof-of-Stake (PoS)?
Proof-of-Stake is a consensus protocol used by several cryptocurrencies that validates transactions and creates new blocks in a given blockchain.
Unlike mining Bitcoin, the Proof-of-Stake mechanism allows users to commit their cryptocurrencies as "stakes" for the chance of being elected to validate a given blockchain transaction. If the transaction is successfully validated, the user is rewarded with staking coins.
Are crypto staking rewards taxable?
Depending on your local tax regulations, staking rewards could be taxable. For instance, some tax authorities are treating staking rewards as income on receipt, which is very much similar to stock dividends because it calculates the fair market value of the assets received as staking rewards.
The Jarrett Case
In the U.S., there is an ongoing lawsuit between Jessica Jarrett and Joshua Jarrett and the United States of America regarding staking taxation.
The goal of this lawsuit is to determine whether staking rewards should be treated as income on receipt or be taxed only upon selling or exchanging the staked tokens.
In December 2020, the Jarrett couple received a letter from the U.S. Department of Justice announcing them that the IRS had been authorized to provide them a full refund, plus interest, for the income they've been taxed from staking. The couple rejected the refund offer on the grounds that the IRS did not provide the reason for this decision, leaving the issue open on whether receiving staking rewards is considered a taxable event.
A new trial in Jarrett's case is scheduled for March 2023, so there is still a lack of official guidance around staking crypto in the U.S.
What should you do?
In the meanwhile, as a taxpayer who made gains from staking, you should consult with your tax advisors before filling the staking rewards entry in your tax returns.
If you're using Kraken, RevoGain can calculate your staking gains using the income on receipt accounting criteria, and you'll get a report that looks as follows:
| Date | Ticker | Type | Quantity | Currency | Price per unit | Fee | Total Amount | |----------|--------|---------|----------|----------|----------------|-----|--------------| | 25-10-21 | ADA.S | STAKING | 0.009311 | USD | 2.144066 | 0 | 0.0199634 | | 01-11-21 | ADA.S | STAKING | 0.123393 | USD | 1.950002 | 0 | 0.2406166 | | 08-11-21 | ADA.S | STAKING | 0.207191 | USD | 2.124419 | 0 | 0.4401605 | | 15-11-21 | ADA.S | STAKING | 0.239877 | USD | 2.015587 | 0 | 0.48349296 | | 22-11-21 | ADA.S | STAKING | 0.240106 | USD | 1.776555 | 0 | 0.42656151 | | 29-11-21 | ADA.S | STAKING | 0.240335 | USD | 1.602508 | 0 | 0.38513876 | | 06-12-21 | ADA.S | STAKING | 0.245349 | USD | 1.425393 | 0 | 0.34971875 | | 13-12-21 | ADA.S | STAKING | 0.341233 | USD | 1.225348 | 0 | 0.41812917 | | 20-12-21 | ADA.S | STAKING | 0.359317 | USD | 1.23824 | 0 | 0.44492068 | | 27-12-21 | ADA.S | STAKING | 0.359626 | USD | 1.512913 | 0 | 0.54408285 |
Luckily, you don't have to do any manual calculations by yourself, like adding the crypto price on the date you were rewarded with staking rewards, as RevoGain can do that for you.
With RevoGain, you can calculate your staking gains in just a few seconds so you can enjoy spending your time doing the things you love instead.