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US tax authorities do not levy tax on unsold saved crypto

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In a civil lawsuit filed in the US district court in Tennessee, a couple requested a $3,293 refund in 2019 income tax for receiving 8,876 Tezos tokens. In addition, the couple asked for a $500 increase in tax deductions to compensate for lost income.

According to sources familiar with the case, the couple received on Dec. 20. a letter from the Department of Justice stating that the U.S. IRS had approved a full refund of their 2019 taxes against the tokens they earned by staking in the Tezos network, plus statutory interest.

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Now it comes, for Americans hoping to earn new tokens by providing security to large blockchains using proof-of-stake, there may be some good news ahead. The US IRS will not tax your unstaked crypto.

The decision is a major step forward in the fledgling strike industry’s struggle to have strike awards classified as property rather than taxable income. According to Staked, a leading staking services provider that was acquired by crypto exchange Kraken in December 2021, the business has grown to an estimated size of $18 billion.

The ruling could have far-reaching implications for the future burden on proof-of-stake miners and strikers.

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“A taxpayer who receives virtual currency as payment for goods or services must include in the calculation of gross income the fair market value of the virtual currency, measured in U.S. dollars, on the date the virtual currency was received.”

For various reasons, cryptocurrency is staked, i.e. locked up under certain conditions, usually to earn some form of issuance of more tokens. The most common is to serve as a validator in the proof-of-stake (PoS) network. Validators in such networks put their tokens on the line as skin in the game. Capital and operational costs (machinery and electricity) play a role in a proof-of-work network. Both are safeguards against spamming and malicious activity by the distributed group of people verifying transactions in the network.

Buying and selling cryptocurrency in the US is taxable because the US tax authorities consider cryptocurrency as property rather than currency. It levies a tax that varies from 0% to 37%.

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