Key Takeaways
- Cardano staking rewards are taxed as ordinary income based on their fair market value when you receive them, and as capital gains when you sell/dispose of them.
- You must report all ADA staking rewards to the IRS. Not reporting your taxable income is considered tax evasion.
How are Cardano staking rewards taxed?
Cardano staking rewards are subject to ordinary income tax when you receive them, and capital gains tax when you dispose of them.
Ordinary income tax: When you earn ADA through staking, the IRS treats your rewards as taxable income based on its fair market value at the time of receipt.
For example, if you receive 10 ADA when it's trading at $0.50, you'll report $5 of ordinary income on your tax return.
Capital gains tax: You pay capital gains tax when you dispose of your cryptocurrency (sell it, trade it away, or spend it).
At that point, you'll calculate capital gains or losses based on the difference between the ADA's value when you received it (your cost basis) and its value when you disposed of it.
When do you officially receive staking rewards?
The IRS uses a concept called ‘dominion and control’ to determine when you received your staking rewards. You have dominion and control at the moment you can freely sell and transfer your ADA (even if you never withdraw your rewards to an external wallet).
For most Cardano stakers, this means rewards are taxable at the end of each epoch (approximately every 5 days) when the protocol distributes them to your wallet.
Do I have to report my Cardano staking rewards to the IRS?
Yes, you must report all Cardano staking rewards to the IRS, regardless of the amount.
Many crypto investors mistakenly believe there's a minimum threshold before reporting becomes necessary. This is not true.
Even if you only earned $10 worth of ADA staking rewards for the entire year, you're legally required to report it as income.
Do I have to answer yes to the question on Form 1040 if I earned staking rewards?
Starting in 2020, the IRS added a question at the top of Form 1040 asking if you earned, sold, or disposed of digital assets. If you earned any staking rewards during the tax year, you must answer "Yes" to this question and report your income appropriately.
Do ADA staking rewards get reported on Form 1099?
Centralized exchanges like Coinbase or Kraken may issue 1099-MISC forms to users who earned more than $600 in staking rewards through their platform. However, decentralized wallets like Yoroi are not subject to the same obligations.
Remember, you are required to report all staking income even if you never receive a 1099 form.
To ensure accurate reporting, you should do the following:
- Track each staking reward distribution (approximately every 5 days)
- Record the number of ADA tokens received
- Determine the fair market value in USD at the time of receipt
- Calculate your total ordinary income from staking for the year
- Track your cost basis for future capital gains calculations
How do I report Cardano staking rewards to the IRS?
You report Cardano staking rewards as "Other Income" on Schedule 1 of Form 1040, line 8z. Capital gains and losses from staking rewards should be reported on Form 8949.
How CoinLedger Can Help
Manually tracking all of your staking transactions throughout the year can be difficult. CoinLedger can make the process easy.
CoinLedger supports Cardano and thousands of other blockchains and wallets. Just connect your exchanges and wallets, and CoinLedger will automatically calculate your capital gains and income for the year.
Frequently asked questions
- Is Cardano staking safe from a tax perspective?
- What happens if I can't find the exact price of ADA when I receive my staking rewards?
- Do I owe taxes if I just hold my staking rewards and never sell them?
- Can I deduct my Cardano staking losses on my taxes?
- What if I staked ADA through an exchange like Coinbase. Are the tax rules different?
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