Monday, May 17, is Tax Day in the U.S., a full month later than normal for reasons related to the coronavirus pandemic.
Yet even with extra time to file, some people just can’t help but wait until the last minute to familiarize themselves with the U.S. tax code.
And that can be problematic for active crypto traders, especially if they’re dabbling in crypto staking or crypto collectibles.
According to Shehan Chandrasekera, head of strategy at crypto tax software firm CoinTracker, people still have plenty of questions about crypto taxes even though the IRS has “been consistent at least since 2014” about how crypto is treated.
The thing people seem most confused about, Chandrasekera told Decrypt, is transfers.
“As long as you’re transferring from one wallet or exchange that you own to another location that you own, that’s not a taxable transaction,” he said. “You could move billions, but you didn’t sell, you didn’t dispose of it, so that’s not taxable…It’s just like you’re transferring money from one bank to another.”
That, of course, is different from trading—when you cash out for dollars or convert one digital asset into another. Both are taxable events, leaving the trader responsible for paying taxes on any capital gains.
But things can get dicier from there.
Crypto Staking and NFTs
Two areas that are bound to cause consternation for many—if not during the current 2020 filing period, then for next tax season—are and ETH2 staking.
Non-fungible tokens (NFTs), the unique digital tokens used to signify ownership of art or some other digital good, said Chandrasekera, can sometimes “be treated as collectibles,” in which case they’d be subject to even higher taxes than digital assets, which are treated as property.
And according to Chandrasekera, the IRS guidance on proof-of-stake chain that relies on people “locking up” their tokens. In the latter, they earn ETH as a reward for doing so. is shaky. is in the midst of converting from a proof-of-work blockchain like , which uses computing power to secure the network, to a
But does moving your Ethereum into an Ethereum 2.0 staking wallet on, say, or Kraken, count as a taxable event? In other words, are Ethereum and Ethereum 2.0 separate currencies, in the eyes of the IRS? Chandrasekera isn’t sure, though some crypto tax software is treating it that way. He laid out two options: The first is a conservative approach that treats the “trade” as subject to capital gains. After all, if the tax implications change, taxpayers can file an amended return. The second is an “aggressive” approach that treats it as the same asset.
But the actual staking rewards, once they hit your wallet, are a separate matter. If you’ve been earning staking rewards from crypto assets such as , those must be reported even if you don’t exchange them. Since the value is constantly shifting—and since rewards are constantly being distributed—”it’s really hard for regular users to track manually,” said Chandrasekera.
And if reading this has you breaking out into a cold sweat, relax: You can always file for an extension and procrastinate some more.
News Source from Decrypt.co