Taxing "staking rewards" is brutal

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I understand the importance of tax, even though I don't entirely get the point of it when the government will just print money anyway, but I accept that we all could keep some part of our earnings to improve our society. However, I feel like sometimes, it seems like the approach used to tax cryptocurrency earnings seems a bit more like a witchhunt than a fiscal policy.

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In my spare time, while I was out with my mate and watching the finals of the Euros, I came across an article that talked about how crypto is taxed in some parts of the USA. In the editorial, the article discussed how a certain gentleman took his city to court because he wasn't satisfied with the way crypto was being taxed.

In my country, cryptocurrency isn't even recognized or protected under any law, so the government doesn't see my activities as taxable events. However, anything you buy with your crypto that's converted to fiat is liable to be taxed.

In America where crypto is perceived as an asset, profit and losses are viewed as taxable events under capital gains tax. However, liquidity pools and staking earning are considered under income tax.

An expensive misunderstanding

As far as the government is concerned, profit is profit, and this is regardless of the asset you earn it in. However, in most places, people still have to pay taxes in fiat.

Other than the fact that crypto tax is paid in fiat, the main problem I have and one that was the bone of contention in the court case is the government's perception of staking.

According to the court case, minting new coins or tokens through staking is considered earnings. If we look at it on the surface, are you really earning anything when you print new Hive, Leo, Cub, or any other "staking reward"?

The government's perception of cryptocurrencies is that when we print new crypto, we've earned money but technically speaking, that's not true. In fact, digital assets are pretty much worthless unless we take them to the market to sell them.

So, if you don't take your asset to the market, should it be considered a taxable activity? If we're to put it on a scale, like the analogy in the publication, do you get taxed for simply painting or picture or do you get taxed when you sell the picture?

Invasive taxation

In the plaintiff's view, the approach to taxing crypto is invasive and looks a tad bit malicious, if you ask me. The "earnings' from staking aren't actually earnings, they're just new entities that haven't been taken to the market.

If you don't sell it, you ideally shouldn't be taxed for creating it. This is regardless of the fact that there's a market value for the created token.

I mean, there's a market value for pretty much everything but that doesn't mean you get taxed for everything you create right? If you don't try to make money from it(sell it), then you really shouldn't be taxed for it.

Creates complications

It is also worth noting that taxing staking rewards will in turn create complications for people trying to evaluate your tax.

So let's assume you mint new Cub and the market price of the token at the time is $20, and you're mandated to pay 10% of your earnings as tax, how do you record this event, especially when you consider that you didn't actually convert the CUB to USDT.

Also, let's assume you pay the 10% when Cub is $20 and then whales decide to dump the value to $12, how do you balance all these movements out?

Instead of this complicated scenario, it would be wiser for the government to only tax earnings from sales or trade, rather than put pressure on hodlers. Sometimes, I feel like all these complications are put in place to make outlaws out of the good people of crypto town.




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28 comments
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Brutal AF. Taxation is nothing but a scam. Charging double tax on your newly created asset is totally unfair. There will be so much burden on the investors for tracking his hundreds of investments in multiple platforms. It's a stupid idea.

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Totally stupid. I don't know how people keep up with all the types of tax

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They want us to be either poor or wealthy. These groups don't have to pay as much taxes. The middle class gets fucked the most.

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You should pay tax once you convert your crypto to fiat. Or at least, you should be able to pay taxes on the same cryptocurrency.

Anyone can create a new coin and set the price to be $1,000,000,000,000, but we know that's not true.

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exactly at the moment its like being in a casino with a tax man looking over your shoulder. Tax everything that goes to fiat in the real world and leave it be.

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In the US, only the federal government has a semblance of established rules for crypto taxes. As you’ve noticed, they are kinda whacky.

As for taxes at the state and local levels, they vary depending on where you are at.

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The whole thing is far too complicated.

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There isn't a law anywhere in the world that has any merit to obligate anyone to paying over extortion money to an empire of thugs, criminals, terrorists, pedophiles etc. But it sure does scream loud how far humanity has bent the knee to these types of savages by paying tribute to their cause to fuck with us even more with the simple act of paying over the extortion taxes willingly.

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Well, I prefer the way Nigerians are being taxed on products bought compared to the others...

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Yup. I think that's how it should be.

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(Edited)

In the states now, a fiat transaction over 10k has to be pre approved by the IRS. Example, purchase a vehicle from a dealership with cash, you have to first declare where that cash came from and sign your name on IRS docs. Now you can buy the car.

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They want us using loans and hate the idea that we might have enough cash to buy something. The system was designed to prevent that. haha.

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Absolutely. Eh, we just got back to the states last year (thanks, fuckin Covid!) and needed a car. The dealership deployed three different associates to convince us to finance the thing.

I don't remember cash being such a hindrance.

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The system is heavily dependent on people owin debts, it seems.

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The way I look at it is this… and this is MY OPINION and the way I handle my tax BS… Unless I get a 1099 tax form from my income, they can kiss my ass honestly. The only ones that send those are exchanges like Robinhood and Blockfi. I report those so the IRS can see something, but other than that, they can pucker up. The only other thing I do as far as centralized exchanges is I go in and out of USDC through Coinbase, but with stablecoins, no taxable income. I also lend my crypto on Nexo.io which is not US based and doesn’t report to the IRS. I also just use that to loan against my crypto in USDC and pay it back in USDC. No taxes on debt. NOT FINANCIAL ADVISE!!! I take my own risks, and I live in a van so they would have a hard ass time catching me. Plus I am not stupid enough to pay more than 10k in cash or crypto for anything so they won’t be throwing that stupid form at me.

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That's kinda how I look at it as well, though I don't recommend the method to other people. I don't make a ton of money in crypto at all. Not yet, anyway. It's so up and down and so many transactions that I just don't feel like fucking with it. I get a couple of 1099s from a few places, and I send those in with my taxes. I also make regular income on paper and so does my wife, and we don't buy extravagant things or anything. Some people probably send up some red flags when they come into a lot of money.

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The IRS (and agencies like that in other countries) needs to be dismantled. You're right, if they can just print more money whenever they want, why do they need to maintain an overly-complicated system for stealing it back from us? Leave the people alone!

With enough of us, we can just circumvent governments, I think. We'll all just have to renounce our citizenship in our shitty, tyrannical countries and move to countries that are welcoming to people who know to make money work for them. Buy some property, become a citizen, and watch the former empires burn from a good safe distance.

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Which countries are a safe bet right now?

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According to an article going around about a Russian lady who helps people get new passports in tax havens, these are the options:

Saint Kitts and Nevis, Antigua and Barbuda, Dominica, Vanuatu, Grenada, Saint Lucia, and Portugal.

There could be more, but I haven't done research on it. At this point, it's more of a daydream for me.

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The insanely complex US tax law, combined with the criminally high taxation rates, are the main reasons why I finally just said fuck it, and quit filing my taxes altogether. I don't even think about that stuff anymore. NFA, of course ;)

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Just stay under the radar and don't be fancy, no matter how much cash you have.

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Good advice. Fancy I ain't ;)

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This is a really thought-provoking piece. I am of the mindset that what you say about taking it to market is where the taxation should be (if we are stuck paying taxes at all) and that it doesn't really make sense to pay on the rewards. I am going to feature this on my little all star segment I've been starting up and tag you! Hope it brings some more engagement!

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That’s why I’ve gotten out of shitcoins and am all in Bitcoin! Crypto is a taxable event in South Africa so anything i do besides buy ane HODL is a taxable event!

No sense in adding so many headaches so all I do is stack Sats! I put some of my Sats in interest accounts that can give me a return just below the taxable threshold while the rest is in long term storage!

The way I see it if you want the benefit of their payment rails you need to pay that premium when converting to fiat.

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It will be a nightmare when it comes to taxes. I also think we should not pay taxes unless we cash out and convert it into fiat. Especially since the price of a crypto can have fairly wide swings.

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If you are referencing the case I think, the couple screwed up by declaring it as profit and paying the tax first, then after the fact tried to get their money back. I don't agree with any taxing of crypto that has not been converted to fiat, but, once you voluntarily hand it over to the IRS, good luck getting it back. You gotta chalk that up to a learning experience.

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