Reporting crypto income received as awards/interest from crypto exchanges

[silentself]

Hello all,

How do I report crypto income earned as "interest" from crypto firms? Since the amount is less than $600, I did not get 1099-MISC from the firm. I did not sell those crypto assets and am still holding them. While I do see the income getting aggregated from sites like "bitcoin.tax", but the incomes themselves are not being reported as taxable events by them. I do not think such income can be reported in 1099-B as well. 

Thanks

[KrisD15 · Accepted solution]

Interest is reported as interest under WAGES & INCOME, but are you sure that's what it is? The problem with reporting it as interest is that the value is not stagnant, so how would you account for that?

Awards are reported as "other Income" and valued at the market value of when you gained control.  Then, if you sell or trade them later, the gain or loss is reported. 

Enter the income as an "Crypto Award ". It will be listed on line 8 of your 1040. 
When you sell or trade it, you may need to recognize a gain or loss on the transaction. 

If you use it to make a personal purchase, that transaction won't be reported UNLESS the value of this virtual currency is up when you use it, then you are taxed on the gain. 

Go to the Wages & Income section

Scroll down to the VERY LAST option "Less Common Income" and click Show more

On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click START

Now scroll down to the VERY LAST option "Other reportable income" and click Start

Select YES on the "Any Other Taxable Income?" screen 

Type "Crypto Award" and the amount.

Let's say the value was $5

Now your "basis" is $5, if it is traded at $7, you have a $2 gain, if you sell at $3, you have a $2 loss. 
If you buy a $2.50 coffee with it and it's still worth $5, (so you only use half) nothing to report.
If you buy a $2.50 coffee with it and it's worth $10, you have a 2.50 gain (because it doubled in value) 
If you buy a $2.50 coffee with it and it's only worth $2,50, you have nothing to report. You can't claim a loss when using it for a purchase. (You COULD have sold it for 2.50, claimed a 2.50 loss, THEN bought your coffee) 

 

[silentself]

I think this post answers it.

Solved: Interest from crypto under $600 (intuit.com)

I am giving just aggregate income under, and maintaining transaction statements

1. Staking will be taxed in the year that you receive it (Taxed as USD)

2. Posted to Wages & Income

3. Less Common Income

4. Miscellaneous Income, 1099-A, 1099-C

5. Income from renting out personal property (not rental real estate or farm rentals)

That said, hope we get a better classification for reporting such income. Very hard to figure this out without going through several forum posts.

[silentself]

Thoughtful answer and I like it better than the other answer I posted myself while digging the forum. Specifically marking the award as a crypto award makes it more formal in tax reporting.

[Thearced]

Hi there!

You're right, even without a 1099-MISC (since the amount is under $600), you still need to report the crypto interest income on your tax return. The IRS considers crypto interest as taxable income.
Here's how to report it:
Schedule 1 (Form 1040): Report the interest income on Schedule 1 under "Other Income." Be sure to include details like the name of the crypto firm and the amount of interest earned.
Taxable Event: Since you haven't sold the crypto assets, it's not considered a capital gain/loss event yet. You only report the interest earned, not the value of the crypto itself.
Crypto Tax Tools:
While some tools like "bitcoin.tax" might not explicitly categorize it as a taxable event, the aggregated income should be helpful when reporting on Schedule 1.
You're also correct, crypto interest wouldn't be reported on a 1099-B (used for stock sales).

Separate Point on Bitcoin Payments:

While we're on the topic of crypto, have you considered accept bitcoin payments on your website ? It's a growing trend and could be an interesting way to expand your payment options (assuming it aligns with your financial goals). There are services that make it easy to integrate Bitcoin payments, so it might be worth exploring!