In this episode Mark Kohler and Matt answer a listener’s question about whether crypto rewards earned on platforms like Voyager are taxable, even if the underlying crypto has not been sold and may be at a loss. They explain that crypto rewards (staking, yield, or other platform‑issued tokens) are treated as ordinary income at the fair market value when received and must be reported, typically on a 1099‑MISC for passive staking. They contrast three staking scenarios: (1) active validator/node operation, which is a business and can be structured as an S‑corporation to avoid self‑employment tax on pass‑through income; (2) passive platform staking, which is non‑business income subject to self‑employment tax if reported on Schedule C, but usually reported on 1099‑MISC with no deductions; and (3) the distinction between staking income and capital gains/losses that arise when the earned tokens are later sold. They also note that crypto traders can employ a wash‑sale‑like strategy to capture losses, unlike traditional stock traders. Throughout, they promote the upcoming Crypto Tax Summit in Miami, offering both in‑person and virtual attendance options.
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Okay, great question from Tracy. Today on the show, are crypto rewards that I get on Voyager taxable even if I haven't sold any crypto yet? What if I'm even at a net loss in my crypto investing? Well, Tracy, you're at the right spot. We are holding our next crypto tax summit in Miami on, on May 19th and 20th, a two day event which the last one sold out for the in person attendees in Phoenix. We're going to be doing networking lunches and networking breakfast. We have a VIP all access experience and preferred seating if you want. It's going to be a lot of fun. And then for all of you that can't attend in person, you can get the virtual broadcast. And all of that is available@cryptotaxsummit.com but let's answer this question, which is actually a section in that two day event that would probably take up almost 30 minutes or more. So we'll try to answer this as easily as possible here. Matt, so why don't you. Rewards. I hate this word. You know, this is kind of the crypto industry's way of saying, oh, you get a reward, like somehow it's like
points from your credit card. They want it to be like that.
You're not going to get taxed on this. We're just going to call it rewards. Well, Tracy, should I give her the bad news or do you want to? I don't want to be the bad guy.
You're like, this is a great question, Tracy. We got a crypto tax summit. Matt, give her the bad news. All right, Tracy, here's the bad news.
Quite well.
Yeah, here's the bad news. I mean, I saw that one a mile away, by the way.
Yeah.
All right. It's like you can kind of through the material, they're like, all right, now it's Matt's turn to talk. Okay, Tracy, I'm sorry.
Yes.
Your rewards here are, is, is an income to you, so that's going to be taxable even if you just bought crypto through Voyager that has gone down in value because you haven't sold that crypto yet. So you haven't locked in the loss. So but it's the same, works the same way if your crypto is going up in value, you're not paying gain until you sell either. So it works, does work both ways. Don't feel like you're getting a raw deal here, so. But yes, you are taxed on the rewards. Yield, earn, whatever it may be called on what platform you're on.
I'M going to.
And that's at the fair market value of whatever that is worth.
Yeah, I'm going to try to highlight this with our trifecta in for example because believe it or not, when Tracy says rewards she's generally talking about staking. And staking can be taxed in three different ways or there's really three types of staking. On one extreme, if Tracy was to go out and buy her own nodes and be a validator and manage her own staking operation, that's a business. And so over here we would recommend on the left hand side of your trifecta and operations you're going to use an S corporation generally again we don't know Tracy's complete financial picture but she's going to pay self employment tax on staking where she's actively involved in the process. Now when she says well I'm using the Voyager staking reward platform, well that's going to be very passive. So you over here you have a staking scenario where this passive involvement is still income but it's going to be reported on a 1099 miss where it's miscellaneous income or other income that is not business income. So you can't take write offs against it. It's just this quote unquote reward that accountants are referring to it as other income. But I have to distinguish this between and here in the diagram you can see this, you've got. I'm going to put this in red, you've got your capital gains from your coins. I use the emblem of Bitcoin here. So you've got growth that would only be taxable through long term or short term capital gains or you may have losses if it goes down. If you were to sell it and we've teach the strategy of wash sales and cryptocurrency. Traders can use the wash sale and capture a loss and rebuy it the same day. Stock traders cannot do that. But see everybody on this side of the equation she's dealing with this capital gain scenario but when she's staking that is a different revenue source, that is other income and so that is going to be taxed whether even if she does take it and then hold because she's typically going to be paid in tokens or crypto and then that's going to sit over here and then have capital gain or loss in the future. But as you earn it you're going to pay tax on that piece. Matt, thoughts? Is that kind of a helpful layout there? I hope visually?
Yeah, I love that. And We've had a lot of content prior episodes on Crypto Tax and the Crypto Tax Summit. You're going to get a deep dive in that. So make sure you're tuned into that case. You can watch it stream it too. If you don't want to be in Miami for all the festivities and fun, you can stream it virtually too and have the convenience of that as well.
And I don't think I'm going to wrap this up with this point. I didn't think I closed the loop on this. If you're staking, actively engaged in the staking and node operator status, I'll put active staking. You're going to want to run that through the S Corp so you can create some savings on self employment tax. So there's no self employment tax on the pass through income of an S corp. You may or may not have to take a W2. That's going to be very taxpayer dependent in the situation and what you're doing with the money but. But if you don't you're going to just pay self employment tax on a Schedule C which is ugly. So everybody out there, hopefully this little introduction here kind of wets your whistle or gets you excited for the Crypto Tax Summit. So hope to see you there.
