Disclaimer: This article is intended as an informative piece. This is not accounting or tax advice. Please speak to a qualified tax professional about your specific circumstances before acting upon any of the information in this article.
Crypto received as payment, mining income, staking rewards and certain other receipts can be taxable as ordinary income. The treatment depends on why and when you received control of the asset. Common examples:
Crypto payments - if you’re being paid in crypto by your employer you will be taxed according to your income tax bracket.
Mining - miners should establish if their activity classes them as a hobbyist or business miner - click here for guidance. Hobbyists should declare cryptocurrency received as additional income on Form 1040 Schedule 1. If mining amounts to a trade or business, the activity is reported on Schedule C (Profit or Loss from Business), and net earnings may also be subject to self-employment tax, calculated on Schedule SE.
Rewards - this could be from staking, masternodes, interest on crypto deposits, etc. The IRS confirmed in Rev. Rul. 2023-14 that proof-of-stake validation rewards are included in gross income at their fair market value when you gain dominion and control over them. Other reward types may also be taxable income, but their treatment and timing depend on the arrangement.
Hard forks - new coins received following a hard fork are taxable as ordinary income at their fair market value when you gain dominion and control over them; a fork where you receive no new coins is not income. See more detailed information about hard forks.
Airdrops - an airdrop may create ordinary income at the fair market value in USD of the coins when you gain dominion and control over them; the result depends on why you received them.
Crypto you include in income generally takes a cost basis equal to the amount included in income. Selling or exchanging it later is a separate disposal, which can create a capital gain or loss of its own.
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