Here we go. We have come to the place in development, where taxation becomes the deciding factor in crypto. *Takes his hat off
Your concerns about taxation on staking rewards highlight a broader issue in the evolving landscape of cryptocurrency regulations. Itâs crucial to note that existing tax laws often struggle to keep up with the novel features of blockchain networks, especially in the context of inflationary token distributions. Comparing staking rewards to traditional dividends is a common but flawed analogy, as staking rewards donât originate from profit-making activities disbursed to shareholders.
In the case of cryptocurrency, staking rewards involve a redistribution mechanism of existing value rather than the creation of additional value. Currently, there is a lack of jurisprudence and established tax rules specifically addressing these new use cases. As a result, the problem youâre attempting to solve may not even exist within the current regulatory framework. Itâs essential to recognize the need for ongoing dialogue and legal developments in this space to address potential challenges like the one youâve highlighted.
Additionally, itâs worth noting that regulators are more likely to lean towards capital gain taxes as the chosen tax system for staking rewards. This approach would involve assessing the difference between the market price when the reward tokens were emitted and the price at which they were eventually sold. An alternative and simpler accounting method could involve calculating the average buying price of all held tokens by an individual, with staking rewards gradually adjusting this average over time based on the market prices at which they were emitted.
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Could this even be enforced on bridged ATOM?
Wouldnât this wreck LPs?
Unfortunately itâs not quite that simple. The IRS has released a ruling which says that they consider staking rewards income when earned.
If a cash-method taxpayer stakes cryptocurrency native to a proof-of-stake
blockchain and receives additional units of cryptocurrency as rewards when validation
occurs, the fair market value of the validation rewards received is included in the
taxpayerâs gross income in the taxable year in which the taxpayer gains dominion and
control over the validation rewards.
These rulings are not laws, and could be challenged in court, but most people are probably going to comply with them until they are overturned in court (which is probably unlikely).
But anyway, this is a thread from 2019 when the Cosmos Hub was one of the first experimental PoS systems. Itâs obviously very unlikely to happen now.
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But staking rewards are being earned continuously every second. How do you price that? Tick by tick pricing? Is the depth of the market sufficient to guarantee that the price quoted will actually be received if the trade was executed? Pricing continuously distributed staking rewards is a much bigger logistical challenge than tracking stock sales and stock sales are very difficult for the tax authorities already. Just ask the accountant of a day trader.
Regulation at Treasury during the Yellen era is very ideological and led by Sen. Warren who is the de facto economic czar in the Biden administration. She is a big government ideologue and MMTer who generally believe in the totalitarian supremacy of fiat currency - the state must extract all value from its dominion via inflating the currency. Key to that strategy is eliminating all competing forms of money and in particular gold and other commodities which can act as an inflation outlet. For that reason the price of gold is controlled via the central banks which own more than 40% of the world supply of gold and can price control it for several decades (same with silver). Gold and silver are government run cartels just like OPEC+ is a government cartel that sets the price of oil. Thatâs why you have Warren now going apeshit over crypto because it is ruining their totalitarian plans. In any case, this is a very sectarian view and is not a policy that will survive either court challenges or political developments in the US. And worst of all it is not practical.
Like I mentioned in the post above, the only way to determine value is an actual trade for US dollars and as such ultimately that will be the final policy (only the staking rewards you convert to USDC will be taxed). Otherwise the federal government will be taxing unrealized income which is unconstitutional. Unrealized income is property and the federal government is explicitly prohibited from taxing property in the US. That is why there is no wealth tax and there will never be a wealth tax. None of this is new - as you can see nobody is taxing unrealized gains for stocks. If it was possible to do, they would have done it in 1913. It canât be done within the framework of the US constitution (primacy of private property). FDR was a much bigger communist than any of these wannabe pretenders like Warren today.
Right now, if you are an American, staking on Coinbase or Kraken, Coinbase and Kraken will give you a tax form and you have to pay taxes on that. They have a system to price your rewards (because they are an exchange) and produce that tax form for you. If you self custody, you donât pay anything until you convert it to US dollars or USDC on an US exchange. If you convert your crypto to other crypto or even to USDC on foreign exchanges (letâs say in Singapore) or on exchanges that donât give you tax forms, obviously you donât have to pay taxes on it.
Taxation is a process in which business entities issue tax forms for your transactions with them and then the IRS looks at these tax forms to determine your personal tax liability. They obviously cross reference those form submissions with the ones you have submitted. You get audited if the tax forms you submitted are fewer than what businesses have issued to the IRS for you. If no tax form is issued by some entity, there is no tax for you to pay. At the end of the day, under the US constitution, the government can only regulate businesses, not individuals. You donât have personal tax liability unless some IRS registered business says so.
BTW, Senator Warren at some point needs to be censured because she says a whole bunch of things on TV that are clearly unconstitutional and canât happen in the US. The federal wealth tax is not even debatable. She obviously is not an idiot so what she says is clear demagoguery and electioneering. She routinely goes way beyond constitutional norms. I donât want to engage in ideological debates of what should and shouldnât be done. The US has a constitution and thatâs that. Other countries have different views on government power over its citizens and wealth taxes and unrealized taxation there is possible. But not in the US under the current Constitution (which people like Warren swore to uphold).
The federal government canât make you pay tax on unrealized income in the US. If you created a painting at home, should you get taxed for it? What is the value of the painting? The answer today is, when you sell the painting then you pay federal income taxes on the sale. Now, maybe your state has a painting appraiser and they can estimate the painting and then YOUR STATE can levy a property tax on it before you sell it. But the state only does that for very expensive paintings. They donât have the manpower to handle smaller items. In any case, state and local governments can levy property taxes unlike the federal government which is explicitly prohibited.
If that comment was for me (sorry unsure about it), then i missed it. If it was, i think you misjudged my views on taxation. I have 0 concerns about it. I have concerns people trying to push on-wards their slave-like thinking, shaped by society over the last several 100s of years, onto this new paradigm we are trying to build here - blockchains. Other than that, no concerns =)
Here is another 2 cents on the slave topic: an average slave would cost 20 solidus in the Roman Empire. The word âsolidusâ comes from âsolidâ which meant to describe a 1 oz round gold coin. A senatorial toga (ie a nice formal suit) costs 1 solid or 1 gold coin. A slave costs 20. Now, 1 oz of gold is $2000. So as such a nice average formal suit costs today about $2,000 and a slave costs $40,000. So if you are making minimum wage in America, you are more or less a slave by Roman standards. Hope that helps. Nothing really has changed. Economics laws just like gravity are the same through the millennia.
Keep in mind that slaves in the empire (currently America) are better compensated on a nominal basis than the average barbarians (non Romans). That doesnât necessarily mean that slaves live better lives than barbarians, but their compensation (as measured in non-sovereign currency like Gold) is definitely higher. So freedom from imperial yoke has a cost and that is being poorer (in gold terms).
And btw, the word âsoldierâ comes from âsolidusâ (ie people paid to fight). And as such the saying âsoldier of fortuneâ is somewhat of a tautology brought about by a general lack of classic European education in America ÂŻ_(ă)_/ÂŻ
Sometimes slavery is deep inside the head my friend. Its fixable though