Crypto Yearly interest income reporting

Here's a link to some tax info

https://www.cryptotrader.tax/blog/the-traders-guide-to-cryptocurrency-taxes

the way i look at this is similar to a dividend reinvestment program (DRIP).  example you hold stock in a DRIP. dividends are paid by the company and reinvested in more stock.  the amount of the dividend reinvested is taxable income.  this is true despite the fact that you do not sell the stock.  in fact the value of the overall holdings could fall and you would still report the full amount of the dividend as income. you get t take the s in value when you sell the stock. however, there are was sales rules.  . 

so my take is that such interest when credited to your account is taxable.  any decline in the value of the crypto could only be taken when sold.  You would also be subject to the wash sales rules

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@Sodium120mg wrote:

I made investment in stable coins like GUSD which earns interest. I have not sold any crypto but do i need to report the interest income in 1099-MISC. The bank or the company will not send one for the next tax year.

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Interest income is reported on Form 1099-INT, not 1099-MISC. Enter the interest in TurboTax as if you got a 1099-INT, even if you didn't actually get one. All you have to enter is the payer's name and the amount of interest.

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@Sodium120mg wrote:

So wanted to find out.

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What exactly do you want to find out? I told you how to enter the interest income in TurboTax. Was that your question, or is there something else?

Thanks for the clarification. Appreciate it.

BlockFi reports cryptocurrency interest income on 1099-MISC as "Other Income", not on a 1099-INT.
TurboTax Premier doesn't like this, and gives no direction. So, what's the preferred procedure, e.g. pretend its a 1099-INT or call it "prize money", or something else?

The best way to handle it is to enter as it shown on your form, Other income. It is being taxed in the same way as interest income, so it won't change your tax refund or balance due, but will help to avoid errors and red flags. 

This initially works, but TurboTax doesn't accept it during the final review, i.e. it requires the entry to be edited and all the questions answered, and tries to treat this interest income as self-employment work income. After many iterations, I finally got it accepted (without being treated as work) by checking the box "No, it didn't involve an intent to earn money." 

If you received a 1099-MISC, you should record it based on the form you received.  That is what the IRS is looking for.

If you follow these posting directions it will not result in a self-employment issue.

• Wages & Income
• 1099 MISC and Other Common Income
• Select Income from a 1099-MISC
• Enter payer's name
• EIN Number
• Amount you received (Box 3 Other Income)
• State what it was for (Interest)
• Click None of these apply
• Did the interest involve an intent to earn money? NO​​​​​​​

BlockFi will generate a 1099-MISC only if you earned more than $600 in crypto interest. Then you can follow the steps easily. However, if you made less, you will NOT receive a form and you will have to report it somewhere else. I'm still trying to find the answer across forums.

If crypto interest does not reach the $600 annual threshold, you may not receive an IRS Form 1099-MISC.

If you have a record of the crypto interest earned, enter your staking rewards in TurboTax as follows:

• With your return open, select Federal from the left side navigation.
• On the top tabs, select Wages & Income
• Scroll down to Less Common Income section and select Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C
• On the next screen, select Start or Revisit next to Other Reportable Income
• Answer Yes on the Any Other Taxable Income? screen
• On the next screen, enter a description and enter the total US dollar amount
• Continue with the onscreen interview until complete. 

The IRS has ruled that staking rewards only become taxable once the taxpayer "acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency." 

You will need to convert your staking rewards to US dollars if they have not been issued is U.S. dollars.

@faustoruizm

I followed this advice in 2022, but my interest from GUSD is still treated as self-employment income by TurboTax.
It results in a higher tax bill than if it was on a 1099-INT.
Any advice in 2022?

Cheers,

If you follow these posting directions it will not result in a self-employment issue.

• Wages & Income
• 1099 MISC and Other Common Income
• Select Income from a 1099-MISC
• Enter payer's name
• EIN Number
• Amount you received (Box 3 Other Income)
• State what it was for Crypto Staking
• Click None of these apply
• Did Crypto Staking involve work like your main job?  No
• You got the distribution in 2021
• Did the Crypto Staking involve an intent to earn money? NO

The self-employment tax will not be assessed.

the only reason i staked the crypto was because i knew i was going to receive interest for it. so technically, i did have an intent to earn money.

so i have reservations about your advise. can you elaborate on how you are sure of this?

The IRS has ruled that staking rewards become taxable once the taxpayer "acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency." 

You will need to convert your staking rewards to US dollars if they have not been issued as U.S. dollars. 

Here is how to enter your staking rewards in TurboTax as other income:

• Down the left side of the screen, click Federal.
• Down the left side of the screen, click Wages & Income.
• Click Show more to the right of Less Common Income.
• To the right of Miscellaneous Income, 1099-A, 1099-C, click the Start / Revisit button.
• To the right of Other reportable income, click the Start / Revisit button.
• At the screen Other Taxable Income, enter a description such as “Cryptocurrency rewards” and an amount. 

The entries will be reported:

• on line 8z of Schedule 1 of the Federal 1040 tax return, and 
• on line 8 of the Federal 1040 tax return.

@fjleontax 

Turbotax gives me a big fat warning "Do not enter income reported on Form 1099 MISC"... so even though i appreciate you replying, I can't follow your advise.

Furthermore, your claim about the IRS guidance about staking rewards doesn't seem to be accurate. There is no guidance on staking rewards just yet according to https://koinly.io/blog/irs-staking-court-case/. There's the expectation that they should be treated as income when received, and capital gain/losses when sold

For next tax year, the situation may improve as IRS is demanding crypto exchanges to start reporting crypto transactions to them and issue a 1099-B or a new version altogether in the following year (which I hope it's the case, let's avoid reusing forms that were not created with crypto in mind)

Yes, you are correct in thinking the tax law will become more clear each year as it pertains to crypto transactions. They do not refer to staking as interest income currently.  The reporting can be done exactly as instructed by our Tax Expert @JamesG1.

In tax law the meaning behind the following statements is whether you performed a service to earn this money.  You physically, not your money earning money for you.  The difference is 'earned income' and 'unearned income' which are treated very differently on the tax return and under tax law.

1. Did Crypto Staking involve work like your main job? 
2. Did the Crypto Staking involve an intent to earn money?

The IRS defines earned income as:

• Taxable income you earned as an employee, such as wages, salaries, commissions, and tips
• Profits from operating your business or farm
• Long-term disability pay, if received before the minimum retirement age
• Union strike benefits

The IRS also gives you the option of treating nontaxable combat pay (code Q in box 12 of your W-2) as earned income for the Earned Income Credit (EIC).

The IRS defines unearned income as:

• Taxable income from investment-type income such as taxable interest, ordinary dividends, and capital gain distributions. 
• It also includes unemployment compensation, taxable social security benefits, pensions, annuities, cancellation of debt, and distributions of unearned income from a trust

Please update here if you have more questions and we can help.

@fjleontax 

TurboTax says DO NOT ENTER 1099 MISC INCOME HERE on the miscellaneous income section

I used the 1099 misc section instead which uses box 3 answered without intent and that got show up on 1040 with schedule 1 in item 8z which i believe it's the best fit for now

Yes, as you say, the IRS will most probably issue more guidance in the near future. 

The main objective is to get that reported as income, but not as Self-Employment so that there is no Self-Employment tax charged.    

"Did the Crypto Staking involve an intent to earn money?"

This option does not appear in Turbotax Online 2022... As a result, i cannot avoid self-employment tax.

What do i select when entering my info from my 1099-MISC (issued by Gemini for my Gemini Earn Interest)?

@jeloian 

To report the Form 1099-MISC as ordinary income -

Click on Federal on the left side of the online program screen

Click on Wages & Income

Scroll down to Other Common Income

On Form 1099-MISC, click on the start or revisit button

On the following screen answer Yes for receiving a Form 1099-MISC

Complete the Form 1099-MISC and Continue

On the next screen enter the reason for receiving the form and Continue

On the next screen Does one of these uncommon situations apply?

Check the box labeled None of these apply and Continue

On the following screen select No, it did not involve work like (your name) main job and Continue

On the following screen select got it in 2022 and Continue

On the following screen select No, it didn't involve an intent to earn money and Continue

On the following screen select No you do not have another 1099-MISC and Continue

On the following screen select Done

Got it!
I had selected "got it in 2021 and 2022" which screwed it up.
Thank you,