Taxable Events from Staking Crypto and Paying Taxes on Historically Undeclared Events

[bdchatham]

Hi there,

I have been running a node on a cryptocurrency network which gives me a small yield. This yield is in two categories: 1) a small amount (couple hundred dollars) has already been distributed to my wallet over the past couple years and 2) a larger amount (a few thousand) is still locked in the node's wallet. I'm wondering when these two types of yield are effectively taxable and if I have taxable events I must retroactively declare, how can I do that?

[TeriH]

Great question!

According to the IRS, mining Bitcoin or another cryptocurrency is a taxable event, where you'd have to recognize the Fair Market Value (in USD) of the mining rewards "at the time you received them". You'll need to report your mining rewards as taxable income in your US Individual Income Tax Return (Form 1040).

[bdchatham]

Thanks for the response! In this case, it's Ethereum, and because withdrawals were not available for about 2ish years during staking, those gains were not effectively mine yet. I imagine I can trace back to the time I received the rewards and calculate this if the tax is incurred at the time of the reward. I just need to know exactly what the time of the taxable event is.

[TeriH]

In a recent IRS revenue ruling In Revenue Ruling 2023-14, the IRS has ruled that rewards received by a cash-method taxpayer “staking” cryptocurrency in connection with validating blockchain transactions must be included in the taxpayer’s taxable income in the year the taxpayer gains control over the staking rewards.

The key is control.

[bdchatham]

Got it - that's very helpful. Thank you for clarifying this.