Do You Have to Pay Taxes on Airdrops and Staking Rewards?
Most individuals know that you have to pay taxes on cryptocurrency gains, but do those same rules apply to airdrops and staking rewards?
Cryptocurrency taxes are a complicated subject, and the answer to whether or not you need to claim an aspect of your portfolio depends on where you reside. Read on to learn more about cryptocurrency taxes on airdrops and staking rewards.
Do You Need to Pay Taxes on Crypto Airdrops?
Although the laws and regulations vary from country to country, in the sample we used to write this article, it was a resounding yes. In the United States, Australia, and most European countries, cryptocurrency airdrops are considered income and must be reported as such on income taxes.
Of course, most seasoned investors know that the monetary income added to your portfolio because of an airdrop is often negligible—but regardless, you should report it to your government during tax season just to ensure you aren’t breaking any laws.
Do You Need to Pay Taxes on Staking Rewards?
Even though cryptocurrency airdrops might be a bit of a gray area, staking rewards are not. Staking rewards are income in the form of cryptocurrency, and all countries categorize them as such.
This means you absolutely must report your staking rewards come tax season, unless you are lucky enough to live in one of the few completely income tax-free countries. Even if you only received a small return on your staked cryptocurrency, the laws are clear on this one, and you must report.
What Other Cryptocurrency Must You Claim on Taxes?
In general, we recommend reporting any and all of your cryptocurrency activity to the governing authorities come tax season, as this can save you the possibility of criminal charges later. Below is a more specific list of all of the aspects of cryptocurrency holding you should report to the government.
· Holdings, including stablecoins
· The purchase or sale of an NFT
· Capital and realized gains from buying/selling/trading cryptocurrency
· Airdrops
· Staking rewards
· Mining rewards
· Any form of profit coming from cryptocurrency
Where Can You Get Help With Crypto Taxes?
Taxes are extremely complicated, and we are just an online blog—meaning while we can help direct you in a specific direction, we are not a tax entity and cannot give official tax advice. That being said, most countries have some sort of help available to their citizens.
In the United States, you can actually contact the IRS directly, however they often will take weeks, or even months to get back to you. Therefore, we recommend hiring a company to help process your taxes, like TurboTax or HR Block.
In Europe, because the countries are much smaller, it is often possible to contact the tax authorities directly, and in most cases that we tested, we were able to speak to an actual human being with our questions. Just be prepared to wait on hold for an extended period of time, and know that the government may direct you to contact another entity for help if they cannot answer your questions directly.
In Asia, cryptocurrency ownership is illegal in most of the larger countries, though in the few they are legal, we recommend checking the government tax website for directions on who to contact. While we can assume these tax authorities are also reachable by phone, we did not test our theories in any Asian countries.
In Australia, you have to apply for a TaxHelp program and make an appointment with the online portal. If you don’t want to go through that process, Australia has similar free-market tax services like the US. Just make sure the entity has the proper credentials before working with them. You can find a full list of approved tax advice providers in Australia here.
We unfortunately do not have any information about South American and African countries, and we are also unfamiliar with the tax codes in these places. You’ll want to check your government website for more information.
Can You Hide Cryptocurrency From The Government?
In the past, it was easy to hide cryptocurrency holdings from the government as they were generally unaware of how cryptocurrency functioned. Things have changed however, and most larger countries now have forensic branches of the government monitoring the blockchain for large transactions.
While using a privacy coin like Monero and coin mixers can help you to hide cryptocurrency holdings and sales, this is illegal, and (in our opinion) not worth it. Most countries have favorable views on cryptocurrency, and thus, the cost of the taxes is worth knowing that you can spend your cryptocurrency whenever you want. If you hide your cryptocurrency and the government finds out, you could be facing a fine, jail time, and lose access to all of your cryptocurrency.
And as we said above, the government grows more knowledgeable with each year that passes. Just recently, they were able to trace criminals who had stolen millions in cryptocurrency using a food delivery order.
When Should You Report Cryptocurrency on Your Taxes?
It is generally advised to report any cryptocurrency you own the first tax year that you own it, however, due to the leaps and bounds cryptocurrency tax law has made in recent years, we know that might not always be possible.
Overall, governments are understanding, so you can probably report the first year you become aware of the law without issue. And in most first-world countries, tax employees can help you back-file taxes for any years you might have missed.
Sadly, there are a few exceptions to this, in countries which are known not to be understanding with their citizens, namely China. If you are Chinese and still hold cryptocurrency, keep that fact to yourself and do not reveal it to the government. Because of the way the Chinese government monitors their citizens, even attempting to access your account while in the country can go poorly. Instead, whatever you have been doing to hide your crypto—keep doing it. Hopefully, in the future, even the worst countries will come around to the idea of cryptocurrency.
