Blockfi Cryptocurrency Interest Payments and 1099-MISC

[Fred_Fandango]

Yes, interest (sometimes called yield or rewards) paid on cryptocurrency in deposit accounts is confusing. I don't think the problem is with BlockFi. Rather, it hasn't been clear whether and how such interest payments are reportable to the IRS. So, BlockFi didn't know what to do. As you may be aware, BlockFi was recently informed by the SEC that their interest account is a security, which meant that they had sold unregistered secruities. The SEC imposed a $100MM fine. In any case, all of the companies that provide interest on cryptocurrency deposits to US customers have been filing 1099-MISC forms showing the interest. It is not just BlockFi. Presumably the SEC has informed the companies that the interest payments should be reported in this manner. Unfortunately, the IRS has not yet explained to taxpayers how the 1099-MISC income should be reported and TurboTax hasn't yet caught up. Clearly, you need to report the income somewhere and I agree with you that is isn't employment income. One other point of clarification: selling cryptocurrency is different from receiving income. When you sell cryptocurrency you will have a capital gain or loss, either short-term or long-term depending on your holding period. You would report this the same way as the sale of stock or other capital assets. The IRS considers cryptocurrency to be “property," which means is is taxed in the same way as any other assets like stocks.

[AmyC]

The IRS made a lot of progress in 2021 and not all cryptocurrency is treated the same. There is personal use crypto, going to Starbucks, paying your Dish bill, etc and any loss on personal use  property is not allowed, just like when you sell your  personal car at a loss. Only when crypto is held and used like a stock or investment is the loss allowed. See what the IRS expects here.

In addition, If you have a foreign digital wallet, you must now check to see if you need to file the FBAR. FINCEN is not yet required. Here is a comparison of the FATCA (Form 8938) and FBAR requirements. The FBAR is not part of the tax return. It is filed separately. If necessary, file FBAR through the Financial Crimes Enforcement Network.

Report all income on your return. If audited, you can show you paid taxes on all income. The location in the return is only important in making sure you paid enough in taxes. For example: capital gain with a lower rate vs interest at the normal tax rate.

@lorikrant 

[jkeough41]

The intent to earn money part is what I was messing up, that fixed my issue by choosing "NO"

[Calm-Avocados]

For anyone else struggling with this, I got it to show up in Schedule 1 8z, by answering the questions like so

1. Does one of these uncommon situations apply? None
2. Did the Blockfi involve work that's like your main job? No
3. How often did you get income for Blockfi? Only select 2022
   
4. Did the Blockfi involve an intent to earn money? No

[deepesh76]

But isn't the Intent to earn money? is a Yes b/c that is the intent by staking the USDC, right? 

[Calm-Avocados]

I am not a CPA. You probably shouldn't listen to my advice, but I did link to the IRS page for you to read for yourself.

My understanding is if you mark that "as intent to earn money," you are telling Turbotax that this is a business [0], and thus you would owe self-employment income taxes. My understanding since trading crypto is an equity, you shouldn't pay self-employment tax against the income.

https://www.irs.gov/businesses/small-businesses-self-employed/business-activitieshttps://www.irs.gov...

[DianeW777]

Cryptocurrency airdrops are (usually) free distributions of coins or tokens into multiple wallet addresses to promote and drive adoption of a new virtual currency.

Recently, the IRS ruled that airdrops, along with promos and staking rewards, only become taxable once the taxpayer "acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency." Airdropped currency that's not yet usable or accessible would therefore not be taxable until the taxpayer can exercise control over it.

If you follow the steps in this link it will not be reported as self employment income.  Step 2 - Enter in TurboTax 

• Step 1 - Convert to USD
• Staking Award
• Cryptocurrency Info Center

@deepesh76 

@Calm-Avocados