Crypto Staking Taxes: Services and Staking Rewards CPA

Crypto Staking Tax Accounting for Validators, Delegators & DeFi Participants

Staking has become one of the most popular ways to earn passive income from cryptocurrency holdings. Whether you’re validating transactions on Ethereum, delegating to Solana validators, or earning yield through DeFi protocols, each staking reward you receive carries tax implications that must be properly reported. All crypto income, including staking rewards, must be reported to the IRS, regardless of the amount—there is no minimum threshold for reporting staking rewards.

At Monaco CPA, we specialize in staking tax preparation for all major proof-of-stake networks and DeFi platforms. Based in Livingston, NJ and serving clients nationwide, we help stakers understand their obligations, accurately report income, and strategically manage their tax position. The IRS may inquire about your financial interest in virtual currency transactions, making accurate reporting essential.

 

How the IRS Taxes Staking Rewards

IRS clarifies staking taxation in Revenue Ruling 2023-14, stating that staking rewards are taxable as ordinary income when you gain “dominion and control” over the tokens—in other words, when you have the ability to freely sell, transfer, or use them.

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Staking rewards are subject to ordinary income taxes at the time of receipt, based on their fair market value in USD. This means you must report the value of the rewards as ordinary income for the tax year in which you receive them.

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In a recent case, the IRS issued a tax refund based on its interpretation of when staking rewards become taxable, further highlighting the agency’s active role in shaping crypto tax policy.

 

Taxpayers should look for further guidance from the IRS as regulations and interpretations continue to evolve.

 

Taxable at Receipt

Staking rewards are considered income and are included in your gross income for tax purposes when received. The fair market value of staking rewards at the moment you receive them constitutes ordinary income. The reward's fair market value at the time of receipt determines the amount recognized as ordinary income. This income is subject to federal tax at your marginal rate (up to 37%) and potentially self-employment tax if staking is part of a trade or business.

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The taxation of staking rewards is income based, meaning the value at the time of receipt is used to determine the amount taxed.

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Staking rewards are taxed as ordinary income, and the IRS has clarified how staking rewards are taxed at the time of receipt. Staking rewards taxed as ordinary income at receipt may also be subject to capital gains tax if you later dispose of the asset, but you are not taxed twice on the same profits.

 

Subsequent Sale Creates Capital Gain/Loss

When you later sell or dispose of tokens earned through staking, you recognize a capital gain or loss based on the difference between your sale proceeds and your cost basis (the income amount you already reported at receipt).

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For tax purposes, cryptocurrencies are classified as capital assets, meaning gains and losses from their sale or disposal are subject to capital gains tax rules.

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Selling or disposing of crypto, including staking rewards, is considered a capital transaction and constitutes a taxable event that must be reported on your tax return.

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It is important to understand the tax consequences of these transactions, as you are required to report any capital gains or losses resulting from the sale or disposal of your crypto assets.

 

"Dominion and Control" Timing

For some staking arrangements, rewards may be locked or inaccessible for a period. In these cases, you only recognize income for tax purposes when you gain access to the tokens. Taxation may be deferred until you actually gain access to the tokens. We analyze your specific staking setup to determine the proper timing of income recognition.

 

Types of Staking We Handle

Proof-of-Stake Validation (Ethereum, Solana, Cardano, Polkadot)

Operating your own validator node or delegating to validators on PoS networks generates regular staking rewards. The tax treatment of staking rewards may differ depending on the particular blockchain and its protocol. We track rewards across all major networks and ensure each reward is properly valued and reported. For Ethereum stakers who locked ETH before the Shanghai upgrade, we help determine when dominion and control was established for tax purposes.

 

Liquid Staking (Lido, Rocket Pool, Marinade)

Liquid staking protocols issue derivative tokens (stETH, rETH, mSOL) in exchange for your staked assets. Liquid staking may involve exchange transactions that must be tracked for tax reporting, as these activities can be reported by crypto exchanges to the IRS through forms like 1099-B or 1099-DA. The tax treatment of these swaps is nuanced—some may trigger immediate capital gains while others may qualify as non-taxable exchanges. We analyze your specific transactions and apply the appropriate treatment.

 

DeFi Lending and Yield Farming

Depositing crypto into lending protocols like Aave, Compound, or Curve to earn interest creates taxable income. The mechanics vary by protocol—some issue interest-bearing tokens (cTokens, aTokens) while others accrue rewards directly. Each approach has different tax implications that we carefully track.

 

Liquidity Pool Participation

Providing liquidity on Uniswap, Curve, or similar DEXs involves complex transactions: depositing token pairs, receiving LP tokens, earning trading fees, and potentially receiving additional reward tokens. We reconcile all components to determine your taxable income and capital gains.

 

Staking NFTs

Some platforms allow staking of non fungible tokens (NFTs) to earn fungible tokens or additional NFTs as rewards. These rewards are taxable at fair market value when received. We handle the unique challenges of valuing NFT rewards where market prices may be difficult to establish.

 

Digital Assets and Staking

Digital assets, such as cryptocurrencies and non fungible tokens (NFTs), can be staked to generate additional income in the form of staking rewards. The staking process involves locking up a certain amount of digital assets in a wallet or on a platform to help secure and operate a blockchain network. In exchange, investors receive rewards, which are typically paid out in the same cryptocurrency or token being staked. For tax purposes, the fair market value of these staking rewards at the time of receipt is considered ordinary income and must be reported as such. This means that whether you are staking popular cryptocurrencies or NFTs, you need to keep detailed records of each reward, including the date, time, and fair market value at receipt. Accurate documentation ensures you report all income correctly and remain compliant with tax laws regarding digital assets and staking activities.

 

What We Track and Report

Reward-by-Reward Valuation

Each staking reward event is valued based on the reward's fair market value at the time of receipt. We capture each reward event, determine the fair market value at that moment, and aggregate them for proper reporting. This detailed tracking also establishes accurate cost basis for each token received.

 

Multiple Protocol Aggregation

If you stake across several platforms or chains, we consolidate all activity into a unified report. No need to manually reconcile data from different sources—we handle the aggregation.

 

Form 1040 and Schedule 1 Reporting

Staking income is reported on your tax return, typically on Schedule 1 as "Other Income" for individuals not operating as a business. For those running staking as a business (such as large-scale validators), income may be reported on Schedule C with self-employment tax implications.

 

Form 8949 for Disposals

When you sell or swap tokens earned from staking, we prepare Form 8949 with accurate cost basis reflecting the income previously recognized.

 

Exchange Transactions and Taxation

When you sell or exchange staking rewards for other cryptocurrencies or fiat currency, these transactions are considered taxable events. The IRS requires you to calculate a capital gain or loss for each exchange transaction, using the fair market value of the staking rewards at the time you received them as your cost basis. The capital gain or loss is determined by subtracting this cost basis from the sale price or the fair market value of the asset you received in exchange. All such transactions must be reported on your tax return, typically using Form 8949 and Schedule D. Understanding the tax consequences of exchange transactions is crucial to avoid errors, underreporting, or potential penalties. Keeping precise records of each transaction, including the fair market value and cost basis, will help ensure you accurately report all gains or losses from your staking rewards.

 

Record-Keeping for Staking Rewards

Maintaining meticulous records is essential for anyone earning cryptocurrency staking rewards. The IRS considers staking rewards to be taxable income at the moment you gain dominion and control over the digital assets, meaning you have the ability to sell, transfer, or use the rewards. At that point, the fair market value of the staking rewards is treated as ordinary income and must be reported on your tax return for the relevant tax year.

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To ensure you pay the correct amount of income tax and capital gains taxes, it’s critical to document every staking transaction. For each reward, you should record the date and time of receipt, the type and amount of cryptocurrency received, and the reward’s fair market value at the time you gained control. This information establishes your cost basis, which is necessary for calculating any capital gain or loss when you eventually sell or exchange the staking rewards. Failing to track these details can lead to errors in reporting taxable income and capital gains, potentially resulting in IRS scrutiny or penalties.

Staking rewards are considered taxable income even if you do not immediately sell them. Unsold staking rewards must still be reported as other income—typically on Form 1040—regardless of whether you convert them to real currency or hold them as digital assets. When you later dispose of these assets, you must report the capital gain or loss on Form 8949 and Schedule D, using the original fair market value at receipt as your cost basis.

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Given the volume and complexity of staking transactions, many investors and business owners rely on crypto tax software such as Awaken Tax or CoinLedger to automate the process. These tools can help aggregate data from multiple wallets and exchanges, generate the necessary tax forms, and ensure that all staking income and related crypto transactions are accurately reported.

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If you earn staking rewards as part of a business, such as operating validator nodes, your staking income may be classified as business income. In this case, you may be eligible to deduct business expenses like hardware, electricity, and internet costs, further reducing your taxable income. However, the tax treatment of staking rewards in a business context can be complex, so it’s wise to consult a crypto tax professional to ensure compliance and maximize allowable deductions.

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Ultimately, diligent record-keeping is the foundation of proper crypto tax reporting. By tracking the fair market value of each staking reward, maintaining detailed records of all staking transactions, and using the right tools, you can confidently report staking rewards, claim eligible deductions, and pay capital gains tax only on your actual gains. This proactive approach not only ensures compliance with IRS rules but also positions you for tax efficiency as you continue to earn staking rewards and engage in other crypto transactions.

 

Unsold Staking Rewards

Even if you choose not to sell or exchange your staking rewards, they are still considered taxable income at the time you gain dominion and control over them. The fair market value of the unsold staking rewards at the moment you receive them is treated as ordinary income and must be reported on your tax return for the relevant tax year. This means that simply holding onto your rewards does not defer your tax liability—taxable income is recognized as soon as you have the ability to use, transfer, or sell the rewards. It is essential to keep thorough records of all unsold staking rewards, including the date of receipt and their fair market value, to ensure you remain compliant with IRS rules. By understanding when you are considered to have gained dominion and control, you can accurately report all staking income, even if the rewards remain unsold.

 

Staking Tax Planning Strategies

Timing of Reward Claims

Some protocols allow you to choose when to claim rewards. Strategic timing can help manage your income across tax years, potentially keeping you in lower brackets. By planning when you claim staking rewards, you can better manage your tax liability at tax time.

 

Holding Period Optimization

Staking rewards start a new holding period at receipt. By tracking when each reward was received, we can identify which tokens qualify for long-term capital gains rates when sold.

 

Equipment and Expense Deductions

If you operate validator nodes as a business, expenses like hardware, electricity, internet, and cloud hosting may be deductible. We help identify and document legitimate business expenses.

 

Loss Harvesting Coordination

Staking income increases your tax liability—selling other positions at a loss can offset some of that burden. We coordinate staking income with broader tax planning.

 

New Jersey Staking Considerations

New Jersey residents face additional complexity with staking income:

• NJ taxes staking income as ordinary income at rates up to 10.75%

• Capital losses from selling staking rewards cannot offset the original income

• NJ does not permit capital loss carryforwards, so losses must be used in the current year

• Strategic planning around NJ's unique rules can provide significant tax savings

 

We help NJ-based stakers understand these limitations and plan accordingly.

 

Common Staking Tax Mistakes We Prevent

Failing to Report Staking Income

Some taxpayers mistakenly believe staking rewards aren’t taxable until sold. All crypto staking rewards must be reported as taxable income when received. This is incorrect—rewards are income at receipt. We ensure you report all income to avoid IRS notices and penalties.

 

Incorrect Cost Basis

Without tracking the value at receipt for each reward, you may overstate (or understate) gains when selling. Our detailed tracking prevents basis errors.

 

Missing Self-Employment Tax

Active validators may owe self-employment tax on staking income. We analyze whether your staking activity rises to the level of a trade or business.

 

Overlooking State Tax Obligations

Multi-state filers may have complex obligations. We ensure both federal and state returns reflect your staking activity correctly.

 

The Staking Tax Process With Monaco CPA

1. Free Consultation: We discuss your staking activity, platforms used, and volume of transactions to understand your situation

2. Data Gathering: You provide wallet addresses, validator details, and any available transaction exports. We can pull data directly from many blockchains

3. Reconciliation and Valuation: We reconcile rewards, establish fair market values, and build a comprehensive staking income report

4. Tax Preparation: We prepare your federal and state returns with all staking income and any related capital gains properly reported

5. Planning Discussion: We review opportunities to optimize your tax position for the current and future years

 

FAQs: Staking Taxes

Are staking rewards taxable if I don't withdraw them?

Yes, in most cases. You are required to pay taxes on staking rewards as soon as you have access to them, even if you do not withdraw them. These rewards are taxed as income at the time you can claim or access them (even if you choose not to). Some locked staking arrangements may defer taxation until unlocking.

 

What if I restake my rewards immediately?

Restaking does not avoid taxation. Receiving staking rewards and restaking them are separate taxable events. The rewards are still income when received. Restaking simply adds those tokens to your staked balance.

 

Do I owe self-employment tax on staking income?

It depends on whether your staking rises to the level of a trade or business. Operating multiple validators with significant infrastructure may constitute a business. Casual delegation to existing validators typically does not. We help you determine the appropriate classification.

 

How do I value rewards received over many days?

Each reward should be valued at fair market value on the date received. We use historical price data to accurately value rewards across time.

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What about liquid staking tokens like stETH?

When you deposit ETH and receive stETH, this may or may not be a taxable exchange depending on your facts and circumstances. As you earn rewards through stETH appreciation, the tax treatment differs from traditional staking. We analyze your specific situation.

 

Get Expert Help With Your Staking Taxes

Staking income requires careful tracking and proper reporting. Don’t risk IRS scrutiny or missed planning opportunities. Monaco CPA can also assist with tax reporting for charitable contributions of virtual currency, ensuring you maximize deductions and meet IRS documentation requirements. Schedule a free consultation to discuss your staking portfolio.

 

Phone: (862) 320-9554
Email: Greg@MonacoCPA.CPA
Website: www.MonacoCPA.cpa

 

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